The 2NP company is a manufacturer of bedding products which are bed linen sets, blankets, and
pillows. Now, sales increase continuously and the increasing rate depends on the economic situation. The
result from the CEO meeting is they want to produce the yarn used in process by themselves instead of buying
from suppliers. So they assign a team to study project feasibility. The team collects the relevance data for the
analysis as follows:
The company produces its own brand and licensed brand in proportion of 50:50. It has to pay 20% of
revenue from product sales to the copyright owner. Proportion of sales of linen sets, blankets, and pillow in
term of unit of product are 45%, 35%, and 20% respectively. Last year products sold was 500,000 pieces. The
prices for each item are ฿1,500 /piece, ฿1,000/piece, ฿300/piece respectively. The sales price of products will
increase 3% per year for each item.
The fixed cost now is M฿ 300 per year. The variable cost per unit for each item depends on types of
products. The variable cost per unit of linen set is 4.5 times of variable cost per unit of pillow. The variable
cost per unit of blanket is 3 times of variable cost per unit of pillow. The variable cost per unit of pillow is
150 approximately. If the company continue to buy the yarn from suppliers the variable costs per unit of all
items are increase 5% yearly.
In case of produce yarn by its own, the company has to invest in machinery and factory building with
an amount of ฿M 800. The variable costs per unit of all items are increased 3% yearly with the same fixed
cost of exist alternative (exclude new investment). This project has 10 years of lifetime. The salvage value of
the machinery and buildings at the last year is 5% of the initial investment. The plant can use the over
capacity to produce yarn and get profit of ฿M15 per year.
The Data analysis from the marketing department shows that the trend of sales in the next 10 years
increase 3% per year for first five years, increase 5% per year for the last five years.
If you are the head of this working team, how should you assist the CEO committee for this
investment? If they want the return more than X% per year after tax, corporate tax income is 23%.