GB519: Measurement and Decision Making
2.Read the narrative for Exercise 11-38 found on page 459 in your textbook.
After you have read the Article and Narrative, prepare a response to the following Requirements:
Assume that you are a business consultant hired to advise Earth Baby, Inc. (EBI) on the proposed venture from Great Deal, Inc. (GDI). Your task is to analyze the proposal and make a recommendation to either accept or reject it. Your analysis must include critical thinking and analysis supported by evidence using independent references. Your analysis must also include any biases that might be relevant to the proposal.
The analysis must be Word document, 2 to 2 and ½ pages long, not including the Title Page and Reference List. The analysis must be presented in proper APA, 6th Edition formatting, including a Title Page with properly formatted Running head. A Conclusion section is also required
Book: Cost Management(A Strategic Emphasis) 5th Edition Blocher/Stout/Cokins
11-38 Special Order Exercise:
Earth Baby Inc. (EBI) recently celebrated its tenth anniversary. The company produces
organic baby products for health-conscious parents. These products include food, clothing,
and toys. Earth Baby has recently introduced a new line of premium organic baby foods. Extensive research and scientific testing indicate that babies raised on the new line of foods will have substantial health benefits. EBI is able to sell its products at prices higher than competitors because of its excellent reputation for superior products. EBI distributes its products through high-end grocery stores, pharmacies, and specialty retail baby stores.
Joan Alvarez, the founder and CEO of EBI recently received a proposal from an old business school classmate, Robert Bradley, the vice president of Great Deal Inc (GDI), a large discount retailer. Mr. Bradley proposes a joint venture between his company and EBI, citing the growing demand for organic products and the superior distribution channels of his organization. Under this venture EBI would make some minor modifications to the manufacturing process of some of its best-selling baby foods and the foods would then be packaged and sold by GDI. Under the agreement EBI would receive $3.10 per jar of baby food and would provide GDI a limited right to advertise the product as manufactured for Great Deal by EBI. Joan Alvarez set up a meeting with Fred Stanley, Earth Baby’s CFO, to discuss the profitability of the venture. Mr. Stanley made some initial calculations and determined that the direct materials, direct labor, and other variable costs needed for the GDI order would be about $2 per unit as compared to the full cost of $3(materials, labor, and overhead) for the equivalent EBI product.
Required: Should Earth Baby Inc., accept the proposed venture from the GDI? Why or why not?
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