The manager at AnyLogo is considering the purchase of high-speed embroidery mach

Question

The manager at AnyLogo is considering the purchase of high-speed embroidery machines that will allow it to embroider on demand. In this case, the apparel will be made in Sri Lanka without any logo; the logo embroidery will be postponed and will be done in the United States on demand. This will raise the cost per unit to $18. However, AnyLogo will not have any holiday or company-specific apparel to be disposed of at the end of the season. The apparel without logos can be sold for $18 a unit to retailers. The cost of holding inventory and shipping adds $4 to the cost of any apparel left over after the holiday season. With all other information as in Exercise 6, do you recommend that the manager at AnyLogo implement postponement? What will be the impact of postponement on profits and inventories?

Explanation / Answer

Based on the information given here, my answer is in favor of postponement of the logo embroidery. Firstly, unless there is confirmed demand for logo, it should be avoided so that it can be sold in broader market. Secondly, the cost of logo embroidery will raise the cost of apparel equal to the rate of $18 at which the apparel can be sold to retailers.

There is additional cost of $4 on account of inventory and shipping, therefore in case of exports to US, profitibility needs to be worked out on the basis of cost price of $22 (18+4) as per the data given in the question. Other information as in Exercise 6(?) may be used to arrive at the final figures of profits and inventories.

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