Rocko Handbag Ltd
INTRODUCTIONNatalia Martinez is an entrepreneur and developed a popular purses, totes and handbags brand named “Rocko”. Rocko Handbags Limited generated quality packs and satchel with a European essence for American and Canadian market. The Brand is exceptionally prominent to the adolescent. She had formed the company five years ago and it has done well, commanding a premium price for its product, which are especially popular among teenagers and young women.All products are manufactured in the company’s Georgia plant, but Rocko has created the illusion that the products are really Italian designer bags. Savvy promotion has kept the European image alive and served company well even product carries a “Made in U.S.A” label.CASE STUDY ISSUEAt present, the brand is only sold in the United States and Canada. Natalia wants to develop this image and strong brand loyalty internationally. To make her item universal Natalia needs to enter in the Asian Market followed by Latin American market first. At this stage she gains an offer to supply 20000 units of Pippi bag at $8/unit from a major retail store of Brazil. The offer is too low that it is under the production cost whereas her cost of production is $10/unit. She was crazy to enter into the Latin American market yet as per her bookkeeper, she is confronting a situation that whether, it is a better choice to enter into a new market at this point of time or not.
SOLUTION To solve this problem, first we have to consider all the given facts in the problem:Georgia plant could produce the additional units at this time as its current operating capacity is 70 %.Concern about the product retail price in Brazil which is considerably lower than the U.S retail prize of $ 35 to $ 45.Average Volume – units per year: 100,000.Total Fixed Cost (salaries, depreciation, utilities): $500,000.Variable Cost per unit:Direct Labor $3.00Direct Material $2.00Total per Unit $5.00So Average fixed cost is 500,000/100,000 = $5.00 and total variable cost is $5.00 that means total production cost per unit is $ 10.00 and At this stage she gains an offer to supply 20000 units of Pippi bag at $8/unit from a major retail store of Brazil. The offer is too low that it is under the production cost whereas her cost of production is $10/unit. From normal point of view, it is showing that Natalia will lose $2/unit. But there are some points mentioned above and by judging those facts it can be said that she will not lose $2 in total.