The Company and the Product:
SolDoe Enterprises manufactures a variety of lawnmower machines. One of the models, the Z01, is very popular because it operates with batteries that are charged with solar energy or electricity. SolDoe sells its machines through hardware stores and large discount stores in the country with which it has established a long-standing relationship.
Information about Model Z01:
The following is a summary of information related to model Z01:
Average retail selling price (hardware stores and discount stores): $300 per machine.
Total production capacity per month: 2,000 machines
Estimated monthly sales of Model Z01 to hardware stores and large discount stores: 1,500 machines.
Inventory of finished Model Z01 machines available for sale: 500 machines
Variable cost per unit: $70 per machine
Annual Fixed Costs: $864,000
The Agreement:
On July 1, 2023, SolDoe received an offer from PTV, a leading home shopping television channel. Currently, PTV broadcasts to more than 345 million households in 7 countries. The channel offers to purchase 1,500 Z01 lawnmower machines at $98 each. The 1,500 machines must be delivered no later than September 30, 2023, so that they can be sold through PTV during the last quarter of the year.
The agreement requires SolDoe to paint the machines with an exclusive color for PTV (not available anywhere else) and to place a permanent label with the PTV logo. SolDoe estimates that this will cost an additional $12 per machine. The agreement will allow Z01 to sell the 1,500 acquired machines considerably below the average selling price of $300 from other retailers. Additionally, SolDoe commits to accepting any product returned due to defects or unsold.
REQUIRED:
Discuss:
(1) the benefits of accepting the PTV agreement (do not limit yourself to a narrative analysis, it must include a financial analysis)
(2) the disadvantages of accepting the PTV agreement (do not limit yourself to a narrative analysis, it must include a financial analysis)
(3) Indicate whether you are in favor or against the agreement and explain and justify your position. You must take into account and discuss both quantitative and non-quantitative aspects.
