Cadman Food Processors
Managerial Data Analysis | Cadman Food Processors |
Submitted To: Professor D. Cook
Submitted By: Group 3
Executive Summary
The VP of Operations of Cadman Foods faces the decision of having to allocate three million pounds of tomatoes to the production of canned whole tomatoes, tomato juice or tomato paste. Subsequent to that decision, the VP needs to determine whether to acquire 80,000 pounds of additional “A” quality tomatoes at $0.425 per pound. Bill Cooper, the Controller at Cadman Foods has recommended that Cadman produce the maximum quantity of canned whole tomatoes based on Dan Tuckers assessment of the tomato crop. By logical extrapolation, this would result in the remainder of the crop being allocated to the production of tomato paste. Charles Myers, the Sales Manager at Cadman has recommended that instead, 2/3 of the tomato crop be used in the production of tomato paste while the remaining crop should be used in the production of tomato juice. Mr. Meyers arrived at his recommendation based on cost ratio derived on the basis of quality of tomato crop and marginal profit.
The decision that Mr. Gordon and Cadman Foods faces is one that can be clearly solved when the situation it faces is broken down to the core and certain fundamentals are clearly understood. To make the analysis more palatable, it is important that two key elements are understood. The first is that the contribution margin must equal the difference between the selling price and the variable cost price not including the cost of tomato’s, and secondly the cost of the tomato crop is a sunk cost regardless of whether the cost is an average or a ratio based on quality. If any of the crop is not used, or if the costs of tomatoes was applied prior to optimizing production, not all the costs are captured in the analysis. This was one of the findings of our analysis and a key omission made by both Bill Cooper’s and Charles Myers strategies.
In defining our optimization analysis,
Submitted To: Professor D. Cook
Submitted By: Group 3
Executive Summary
The VP of Operations of Cadman Foods faces the decision of having to allocate three million pounds of tomatoes to the production of canned whole tomatoes, tomato juice or tomato paste. Subsequent to that decision, the VP needs to determine whether to acquire 80,000 pounds of additional “A” quality tomatoes at $0.425 per pound. Bill Cooper, the Controller at Cadman Foods has recommended that Cadman produce the maximum quantity of canned whole tomatoes based on Dan Tuckers assessment of the tomato crop. By logical extrapolation, this would result in the remainder of the crop being allocated to the production of tomato paste. Charles Myers, the Sales Manager at Cadman has recommended that instead, 2/3 of the tomato crop be used in the production of tomato paste while the remaining crop should be used in the production of tomato juice. Mr. Meyers arrived at his recommendation based on cost ratio derived on the basis of quality of tomato crop and marginal profit.
The decision that Mr. Gordon and Cadman Foods faces is one that can be clearly solved when the situation it faces is broken down to the core and certain fundamentals are clearly understood. To make the analysis more palatable, it is important that two key elements are understood. The first is that the contribution margin must equal the difference between the selling price and the variable cost price not including the cost of tomato’s, and secondly the cost of the tomato crop is a sunk cost regardless of whether the cost is an average or a ratio based on quality. If any of the crop is not used, or if the costs of tomatoes was applied prior to optimizing production, not all the costs are captured in the analysis. This was one of the findings of our analysis and a key omission made by both Bill Cooper’s and Charles Myers strategies.
In defining our optimization analysis,