Precision Worldwide, Inc Havard Case Study Essay examples

1033 Words Jul 25th, 2011 5 Pages
SUBJECT: Precision Worldwide, Inc.
RECOMMENDATION: My recommendation for Precision Worldwide, Inc. (PWI) is to immediately stop the production of steel rings. PWI then needs to sell the remaining steel rings to at least recoup some of their initial investment. In the meantime they should start producing, selling, and distributing plastic rings to their entire market of customers while attracting new customers who may prefer this new option.
CONCLUSION: By changing their production offering to the plastic rings, PWI will create more profit which in turn will keep them ahead of competitors in the industry. The remaining 15,100 steel rings will have to be calculated as a sunk cost. With this new product offering, PWI will be able to
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PWI currently has a specialized inventory because the steel rings that they produced were made from a unique type of steel. There would be sunk costs that would ultimately come from the failure of PWI to sell back the specialized steel because of the same features that make the steel unique would in the end be the reason that they are difficult to resell. There is over $390,000 in estimated costs of the specialized unprocessed steel and the already completed rings, as well as steel rings that were a work in process. By immediately stopping production of the steel rings PWI will lose quite a bit of money, but in the long run they will be able to bring in a larger profit and more clientele with the production of the plastic rings.
To minimize the amount of that Precision Worldwide, Inc. stands to lose (close to $400,000); they can raise its opportunity cost by bringing to an end the work in process of the specialized steel rings. During the production phase of the new plastic rings, PWI can try to sell all of the remaining steel rings that they have in stock. By doing so, they will be able to decrease the amount of money that they stand to lose when switching product lines. The new profit margin is $828.25 per hundred rings (Cost of the steel rings $1,107.90 minus cost of the plastic rings $279.65). PWI has the potential to earn $1070.35 per one hundred

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