Baker Adhesive Case Essay

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John Kroeger FINA 470 Baker Adhesive Case March 22, 2012 1. How profitable is the original sale to Novo once the exchange-rate changes are acknowledged? How has the exchange-rate risk, which affected the value of the order, been managed? In the original order, Nova was billed BRL 104,338.30 for their purchase. After the exchange of currency from BRL to U.S. dollars, Baker was estimated to receive $48,371.24 (104,338.30 * .4636). This means that Baker brought in $55,967.06 less from their deal with Nova than was expected. Since the exchange-rate risk was not managed, Baker brought in significantly less than was estimated from their deal with Nova and after subtracting their total cost from what they brought in, Baker only made a…show more content…
Novo’s first order to Baker consisted of 1210 gallons of adhesive. Their second order increased in size by 50% to result in an order of 1815 gallons of adhesive. Baker also faced an increase in costs of their materials by 10%. Baker only had to buy 25% of the products needed to create the order Novo requested because they had the other 75% on had so the 10% increase in cost only applied to the new 25% of materials. Novo’s price per gallon of adhesives for their first order was 86.23 in Brazilian real. To find the new price per gallon for the adhesives we need to take into account the change in material cost. We then come up with the following equation: 86.23*(.25*.1) =2.16+86.23=88.39 New price per gallon The component (.25*.1) comes from the increase in material cost and the amount of materials that increase applies to being that only 25% of the materials needed for the order had to be purchased because the other 75% was already on hand. Baker’s costs for Novo’s new order are as follows (given the 50% difference in size order between the first order and the new order): Labor | 9000 | Materials (with 10% increase in costs) | 52000 | Manufacturing Overhead | 6000 | Administrative Overhead | 3000 | Total Costs | 70000 | Now, to find the price of the sale in real for Novo and the revenue for Baker we have the equation: 1815*88.39 = 160,430 1815 is the amount of gallons Novo needs, 88.39 is the price per gallon we found
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