Industrial Grinders Case

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ASSIGNMENT ON MANAGEMENT ACCOUNTING TOPIC- INDUSTRIAL GRINDERS N.V. CASE SUBMITTED BY GROUP-1 ABHISHEK PRATAP SINGH-/1 GAURAV PARASAMPURIA-/1 KOUSTUV BANERJEE-/1 SHAYANI PURKAYASTHA-032/1 QUESTION-WHAT ACTION SHOULD BRIDGEMAN TAKE? WHY? In this case, defining the problem is very important. The problem is that French firm Henri Poulenc produces a plastic ring to substitute from the steel rings used in certain machines sold by Industrial Grinders and this plastic ring is a new product to market. It has longer life but lower cost. Now Bridgeman’s problem is I.G’s large quantity of steel rings are on hand and the substantial inventory of special steel for their manufacture. And this steel as inventory can’t be sold. I.G had…show more content…
Obviously, if they sale at the same price, 100 plastic rings will get $197.25 more profit than steel rings. However, Anders Ericsson, the development engineer, estimated that the plastic rings could be produced by mid-September, so before mid-September, I.G has to sell steel rings on hand. Fortunately, Henri Poulenc was said to be selling the plastic ring at about the same price as the I.G steel ring, so I.G wouldn’t get strong shock from Henri Poulenc. Of course, Henri Poulenc will get higher profit, but only analyzing from the price, I.G and Henri Poulenc are in the same position, so it depends on demanders’ preference which kind of rings they like. And I.G could sell the steel rings in different markets, which are not covered, by plastic rings of Henri Poulenc. It avoids direct conflict. Steel inventory is a big weakness of I.G, so it’s a good time to consume a large amount of steel. Assuming the sales continued at the current rate of 690 rings per week before mid-September, it would consume 19400 steel rings. During the slack time, I.G could ask labors to convert the steel inventory into rings to satisfy the supply amount before mid-September, because at that time, the labor cost will be about 70% of regular wages so that decreases the cost to produce steel rings. Those steel rings only need to satisfy the supply amounts for 4 months using, because after mid-September, plastic ring will be used instead of steel. If there are more steel rings converted than demanded,

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