ESCOM is D producer of electronic home appliances, incuding VHS (Video Home System) television recorders, located in northern Californla. The packzaged product weighs about 75 kg. ESCOM was not the innovator of the system. Rather, ks managers sat back and let RCA and others develop the market, and ESCOM IS currenty produding under license agreements. ESCOM has a consclous strategy of It does not have the finandal belng a follower lith new product innovations. resources to be a leader in research and development. ESCOM's present opportunity Is indicated by the fact that industry sales of VHS recorders have increased 30 per cent per year for the past two years, and forecasts forthe next year and the tiwo fallowing are even more enticing. ESCOM has established a 10 per cent market share position and feels that it can at least malntain this postion if i has the needed capacity; it couid possibty improve ts market share if competitors fall to provide capacity at the time Rt is needed. Year 0 1 2 3 4 5 Forecast (1000) units 100 140 195 270 350 450 Capacity(gap) or slack 1000 units 5 (35) (90) (165) (245) (345) The forecasts and capacity gaps are Indicated in Table. ESCOM regards the first year forecast as being quite solid, based on its present market share and a compilation of several industry forecasts from different sources. It ls less sure about the forecasts for future years, but it Is basing these forecasts on patterns for both black and white and colour TV sales during thelr product ife cycles. ESCOM's VHS model has a factory price of Rs 600. Variable costs are 70 percent the price. Inventory carrylng costs are 20 per cent of inventory value, 15 percentage points of which represents the cost of capital. ESCOM's fadlity planners estimate that a 40,000 unit plant can be buit for Rs. 5 million and a 200,00 unit plant, for Rs. 10 mlion. Land and labour are avalilable in the area, and either size plant can be built within a year. Questlons (a) Justify the capacity plans ESCOM should make for next year.[10 marks] (b) Examine the long-term capadity plans which should be made by ESCOM. [10 marks] (c) Evaluate the implications of these plans for marketing, distribution, and production by ESCOM.(20 marks)

ESCOM is D producer of electronic home appliances, incuding VHS (Video Home System) television recorders, located in northern Californla. The packzaged product weighs about 75 kg. ESCOM was not the innovator of the system. Rather, ks managers sat back and let RCA and others develop the market, and ESCOM IS currenty produding under license agreements. ESCOM has a consclous strategy of It does not have the finandal belng a follower lith new product innovations. resources to be a leader in research and development. ESCOM's present opportunity Is indicated by the fact that industry sales of VHS recorders have increased 30 per cent per year for the past two years, and forecasts forthe next year and the tiwo fallowing are even more enticing. ESCOM has established a 10 per cent market share position and feels that it can at least malntain this postion if i has the needed capacity; it couid possibty improve ts market share if competitors fall to provide capacity at the time Rt is needed. Year 0 1 2 3 4 5 Forecast (1000) units 100 140 195 270 350 450 Capacity(gap) or slack 1000 units 5 (35) (90) (165) (245) (345) The forecasts and capacity gaps are Indicated in Table. ESCOM regards the first year forecast as being quite solid, based on its present market share and a compilation of several industry forecasts from different sources. It ls less sure about the forecasts for future years, but it Is basing these forecasts on patterns for both black and white and colour TV sales during thelr product ife cycles. ESCOM's VHS model has a factory price of Rs 600. Variable costs are 70 percent the price. Inventory carrylng costs are 20 per cent of inventory value, 15 percentage points of which represents the cost of capital. ESCOM's fadlity planners estimate that a 40,000 unit plant can be buit for Rs. 5 million and a 200,00 unit plant, for Rs. 10 mlion. Land and labour are avalilable in the area, and either size plant can be built within a year. Questlons (a) Justify the capacity plans ESCOM should make for next year.[10 marks] (b) Examine the long-term capadity plans which should be made by ESCOM. [10 marks] (c) Evaluate the implications of these plans for marketing, distribution, and production by ESCOM.(20 marks)

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

ESCOM is D producer of electronic home appliances, incuding VHS (Video Home

System) television recorders, located in northern Californla. The packzaged product

weighs about 75 kg. ESCOM was not the innovator of the system. Rather, ks

managers sat back and let RCA and others develop the market, and ESCOM IS

currenty produding under license agreements. ESCOM has a consclous strategy of

It does not have the finandal

belng a follower lith new product innovations.

resources to be a leader in research and development.

ESCOM's present opportunity Is indicated by the fact that industry sales of VHS

recorders have increased 30 per cent per year for the past two years, and forecasts

forthe next year and the tiwo fallowing are even more enticing. ESCOM has

established a 10 per cent market share position and feels that it can at least

malntain this postion if i has the needed capacity; it couid possibty improve ts

market share if competitors fall to provide capacity at the time Rt is needed.

Year 0 1 2 3 4 5

Forecast (1000) units 100 140 195 270 350 450

Capacity(gap) or

slack 1000 units 5 (35) (90) (165) (245) (345)

The forecasts and capacity gaps are Indicated in Table. ESCOM regards the first year

forecast as being quite solid, based on its present market share and a compilation of

several industry forecasts from different sources. It ls less sure about the forecasts

for future years, but it Is basing these forecasts on patterns for both black and white

and colour TV sales during thelr product ife cycles.

ESCOM's VHS model has a factory price of Rs 600. Variable costs are 70 percent

the price. Inventory carrylng costs are 20 per cent of inventory value, 15 percentage

points of which represents the cost of capital. ESCOM's fadlity planners estimate

that a 40,000 unit plant can be buit for Rs. 5 million and a 200,00 unit plant, for Rs.

10 mlion. Land and labour are avalilable in the area, and either size plant can be

built within a year.

Questlons

(a) Justify the capacity plans ESCOM should make for next year.[10 marks]

(b) Examine the long-term capadity plans which should be made by ESCOM.

[10 marks]

production by ESCOM.(20 marks)

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