Sewmex Case Study
DATE: 04/28/2012
TO: Dr. Gordon, Gus.
FROM: Angelica Mendiola, Brittany Shepherd, Kiana Willis, and Terri Smith
SUBJECT: SEWMEX: Short-Term Profit Planning in an International Setting
SEWMEX is a newly formed sewing factory located in Mexico. SEWMEX, owned by an American company, is incorporated in Mexico as a Mexican company. By contract, the American parent company, SEW Inc. purchases all of SEWMEX’s output. SEW provides all raw materials to SEWMEX. The president of SEW is having suspicions that there are costing issues creating cost distortions across the SEWMEX’s four product lines: pants, shirts, outerwear and other products.
The controller of SEW recently resigned unexpectedly after a disagreement with the president of the company. After his departure, many of his calculations concerning SEWMEX mysteriously disappeared. Given the cost of labor in the U.S. factories, the president of SEW would like to send as much future production to SEWMEX as possible. However, the SEWMEX operation is relatively new and not yet profitable. Therefore, both SEW and SEWMEX could benefit from profit-planning exercises.
As a start the president would like for you, in your capacity as assistant controller, to develop a cost-volume-profit (CVP) model for the SEWMEX facility, which model could be used to address a number of short-term profit-planning issues. In particular, the president would like to get a better handle on exactly what volume of output would be needed to make SEWMEX profitable in the short run (given the present mix of garments produced) and what strategies might be pursued longer term to improve operations and therefore profitability. The president also wonders how, if at all, the issue of foreign exchange rates might complicate the profit-planning process. Therefore, he has charged you with the responsibility of developing the CVP model for SEWMEX, while he looks for a new controller. As someone interested in making a positive impression on the
TO: Dr. Gordon, Gus.
FROM: Angelica Mendiola, Brittany Shepherd, Kiana Willis, and Terri Smith
SUBJECT: SEWMEX: Short-Term Profit Planning in an International Setting
SEWMEX is a newly formed sewing factory located in Mexico. SEWMEX, owned by an American company, is incorporated in Mexico as a Mexican company. By contract, the American parent company, SEW Inc. purchases all of SEWMEX’s output. SEW provides all raw materials to SEWMEX. The president of SEW is having suspicions that there are costing issues creating cost distortions across the SEWMEX’s four product lines: pants, shirts, outerwear and other products.
The controller of SEW recently resigned unexpectedly after a disagreement with the president of the company. After his departure, many of his calculations concerning SEWMEX mysteriously disappeared. Given the cost of labor in the U.S. factories, the president of SEW would like to send as much future production to SEWMEX as possible. However, the SEWMEX operation is relatively new and not yet profitable. Therefore, both SEW and SEWMEX could benefit from profit-planning exercises.
As a start the president would like for you, in your capacity as assistant controller, to develop a cost-volume-profit (CVP) model for the SEWMEX facility, which model could be used to address a number of short-term profit-planning issues. In particular, the president would like to get a better handle on exactly what volume of output would be needed to make SEWMEX profitable in the short run (given the present mix of garments produced) and what strategies might be pursued longer term to improve operations and therefore profitability. The president also wonders how, if at all, the issue of foreign exchange rates might complicate the profit-planning process. Therefore, he has charged you with the responsibility of developing the CVP model for SEWMEX, while he looks for a new controller. As someone interested in making a positive impression on the