RECOMMENDATION: Sell the steel rings to the current customers in the French market and inform them that the company has discovered another innovative technique that will decrease their cost and increase the wear time on the rings. Also explain that you are testing the product in other markets to determine if it is a superior product worth their time. Once the steel rings have been exhausted introduce the plastic rings. Utilize the excess labor to produce the steels rings that need to be converted in order to exhaust all steel inventory.
CONCLUSION: Keep up with the competition, but also understand if your customers, shoppers, users, etc, need or want a different product.
RESULTS: Precision Worldwide should take advantage of the overall cost difference to produce the steel rings versus the plastic rings and start developing plans to implement the conversion of equipment from producing steel rings to plastic rings. Based on the total cost in Table A, producing 100 plastic rings will cost the company $828.25 less. In addition and just in case, I would ensure that when converting the equipment etc, I would leave open the possibility to go back to producing steel rings. I would maintain those relationships between the suppliers of the steel as well. Basically, going to plastic rings is a prediction based on what the competition is doing. I would take the time to investigate what the customer wants. They may not want plastic rings. Precision will have to keep this in mind as well.
APPENDIX: Table A 100 Plastic Rings Material Cost Direct Labor Overhead Departmental Administrative Total Cost Selling Price $131.00 $65.50 $279.65 $1,350 $393.00 $196.50 $1,107.90 $1,350 $17.65 $65.50 100 Steel Rings $321.90 $196.50