The DoorCo Corporation is a leading manufacturer of garage doors. All doors are

Question

The DoorCo Corporation is a leading manufacturer of garage doors. All doors are manuacturered in their plant in Carmel, Indiana and shipped to distribution centers or major customers. DoorCo recently acquired another manufacturer of garage doors, Wisconsin Door, and is considering moving its wood-door operations to the Wisconsin Plant. Key considerations in this decision are the transporation, labor and production costs at the two plants. Complicating matters is the fact that marketing is predicting a decline in the demand for wood-doors. The company developed three scenarios:

1. Demand falls slightly, with no noticeable effect on production.

2. Demand and production decline by 20%

3. Demand and production decline 40%

Slight Decline

What decision should DoorCo make using each strategy?

a. aggressive strategy

b. conservative strategy

c. opportunity-loss strategy

*Include excel spreadsheet and back-up calculations

Slight Decline

20% Decline 40% Decline Stay in Carmel $1,000,000 $900,000 $840,000 Move to Wisconsin $1,200,000 $915,000 $800,000

Explanation / Answer

Scenario 1 : Slight decline

If there is a slight decline in sales , DoorCo should make use of aggresive strategy and move to Wisconsin . By moving to Wisconsin , DoorCo can make an additional sales revenue of $ 200,000 .

Scenario 2 : 20% Decline

If there is a 20% decline in sales , the revenue of DoorCo by staying in Carmel is $ 900,000 , whereas if DoorCo moves to Wisonsin , it can realize a revenue of $ 915,000 . The company may adopt a opportunity loss strategy in this scenario . By not moving to Wisconsin , the company will loose a revenue of $ 15,000 .

Scenario 3 : 40 % decline

If there is a 40% decline , the strategy for DoorCo is to adopt a conservative strategy and stay in Carmel where it can earn a revenue of $ 840,000. If the company moves to Wisonsin , it incurs a loss of $ 40,000 because its revenue in Wisconsin is $ 800,000 .

Slight decline 20% Decline 40% Decline Stay in Carmel $1,000,000 $900,000 $840,000 Move to Wisconsin $1,200,000 $915,000 $800,000 Opportunity loss/gain strategy by staying in Carmel ($200,000) ($15,000) $40,000

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