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Hinds Industries, Inc. is a manufacturer of soup and condimentproducts under its own standard and premium labels. The company hasbeen in business for many years and is a “household name”. ItsDenve

Hinds Industries, Inc. is a manufacturer of soup and condimentproducts under its own standard and premium labels. The company hasbeen in business for many years and is a “household name”. ItsDenver soup plant has a capacity of 120,000 cases/mo, but has beenoperating at a normal volume of 85,000 cases/mo. Hinds has beenapproached by Mondo Mart, a large discount retailer, aboutproducing a line of soups under a Mondo Mart house label. Mondowould initially place an order for 15,000 cases/mo, with theunderstanding that the order will be expanded if the product issuccessful. The initial order would be for a reduced line of fourrelatively simple soups, following Hinds’ normal recipes. All ofthese soups have essentially the same production cost of $31 percase, as follows: ingredients and packaging, $17; direct labor, $3;overhead, $11. The overhead is 55% fixed manufacturing costs, 25%variable manufacturing costs, and 20% allocated general corporateoverhead. Hinds would incur $6,000/mo additional setup costs if theorder is accepted. Packaging would cost twenty cents/case lessbecause of a cheaper label used by Mondo. Hinds normally sellsthese soups for $38/case. Mondo Mart has offered $29/case, arguingthat the steep discount is necessary for them to price the productin conformity with their pricing philosophy and customerexpectations. The regional marketing director isinclined to reject the offer, because it is below cost, andtherefore Hinds will lose money on the contract. The ultimatedecision is up to the regional director of operations. Required: Discuss the factors that the operations director shouldconsider in making the decision.

May 31 2021 View more View Less

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