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Chucker Ball Sales Price $9.99 Material Cost $3.00 Labor $2.50 The product development engineer said each product will require a one-time setup cost of $20,000 to modify the production equipment. These costs will be added to the fixed cost for the plant. Production: New Manufacturing Equipment: The production team has taken a survey of all of the production equipment in the plant. Many of the machines are over 20 years old. They would like to create a program to replace at least 4 production machines per year for the next 5 years. The current plant has 30 production machines to make the current product lines. The new machines will produce product 30% faster and require decrease labor for each unit by 20%. This program will cost $1,000,000 per year for 5 years. This cost will be added as a fixed cost to the plant. New Plant: The production manager pointed out that when a competitor went bankrupt their newer plant was left empty. Most of their production equipment is still in the plant. The plant is 50 miles away from the current plant. If this plant is acquired they recommend moving production to the new plant and closing the old Winston & company plant. The location of the new plant is in an area that is economically depressed, so wage rates are 15% less in the market. They anticipate that only 30% of their experienced staff will choose to relocate. If this occurs once the move is made overall production will decline by 10% in the first two years. They also anticipate scrap will increase to $10,000 per year for the first year due to inexperienced staff. The cost to run this plant is similar to the existing Winston & Company plant. In the long run the operating expense for this plant will be lower once the old Winston & company plant is close. Product Mix: The Winston & company Product Mix currently consists of three products, Bikes, Helmets and Kneepads. The marketing analysis indicates the market for these products will increase by 30% over the next 10 years. The kneepad market is expected to expand at a slower rate of only 10% over the same period. Management realizes to meet the objectives of the board they will need to expand into other product lines. They have identified two products that have been created by outside inventors. They expect to receive a royalty for every unit that is produced. They have located offshore plants to produce the product at a very reasonable cost. They feel the Winston & company name will lend credibility and generate interest in the products

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