Managerial Accounting
Week 2
Group Discussion
Week 2: Group Work- Harvard Business Case 1
Group Members: Michael Fant, Jennifer Meyering, Christopher Presley, James Ramson, Jacinta Stockton, Alistair Winfield, Judy Zeitang What action should Hans Thorborg take? Why?
Our analysis of this case is to advise Hans Thorborg to move to producing the plastic rings. It is important for PWI to evolve with the industry, and refusing to transition to the new product could have a devastating impact on their future sales. Although PWI has a strong presence in the market, it’s stated in the case study that the plastic rings have at least four times the wearing properties of the steel rings. Therefore, while the steel ring currently lasts for an estimated two months, the plastic ring will last for an estimated eight months. Buying a plastic ring would guarantee a customer a better quality product and essentially a better bang for their buck. Also, the total costs to produce the plastic ring would be significantly less allowing the company to take advantage of a huge profit margin. Instead of trying to justify the stock on hand and how much he paid for the stock, he should avoid the sunk cost fallacy. There is not enough information in the study to compare production costs, but with the information available it seems that the plastic rings would be more profitable for the company.
As for the stock that is already on hand, there is opportunity to sell them to locations where the plastic ones are not yet available, or sell them for a discounted price after projected sales are met. With a two month life expectancy on the steel ring, combined with the discounted price, PWI may be able to entice customers, even competitors to purchase a large portion of the existing inventory while awaiting the arrival of the plastic ring. If during this time, demand for the discounted steel