Accounting

781 Words4 Pages
What action should Hans Thorborg take? Why? One option Hans Thorborg has is to develop a new marketing strategy to incorporate the remaining inventory into new sales. For example, he can instruct Gerhard Henk the sales manage to offer the customer a new set of replacement plastic rings free after the first rings wear out. The promotion would help PWI to fortify the vendor to customer relationship commitment of quality and satisfaction while potentially increasing sales as well. The assumption would be the plastic rings are produced by the time the rings wear out. Hans would then have to deal with the total cost of two rings ($279.65 + $1107.90 = $1387.55 per hundred). In this scenario Hans would be face with a net loss of $37.55…show more content…
Given the insignificant initial investment of $7,500 to manufacture plastic rings, he should be concerned that this new innovation will increase profits short-term but eventually lead to a loss of 480% ($242.1 / $50.37) long-term after other competitors produce the part. A second option Hans Thorborg can try is to transfer his inventory or raw materials to markets which Henri Poulenc has yet to enter. Since Henri Poulenc, the competitor of Precision Worldwide, only influences 10% of the market share worldwide. As mentioned the new plastic rings would not be produced by any company other than Henri Poulenc for some time. Financials aside, knowing this information would negate the urgency made by sales manager, Gerhard Henk, who commented that if customers found out plastic rings were sold elsewhere then it would be detrimental the sales of Precision Worldwide machines – which are many times the print of a ring. This gives some assurance that this could impact only 10% of total PWI sales, not the entire company. If feasible, Hans can try to relocate these inventory or raw materials using intercompany transaction to locations not impacted by this new plastic rings innovation. Labor and sales cost can be accrued in “due from” and “due to” accounts depending on the branches that currently manufacture and require additional steel material. Hans can even consider
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