Discussion Boards

Post once in Week 3 (before the week ends Sunday night) and once in Week 4 (before Week ends Sunday night).  Target length of each post is 300 words; max 500. If you are the first one to post, provide something to inform and challenge your classmates’ thinking.  If you post later in the week, build on what has already been posted. 

Week 3: Relevant costs  (Refer to Study materials on Cost Concepts).  Requires one post.
In the Energy Gel case,  Wickler, Leiter and Nanzen argue about how to allocate costs for a new product launch.   HPC wants to launch gels if its revenues minus incremental (relevant) costs provide an acceptable return on invested capital.  Any costs that HPC will continue to incur without launching gels are irrelevant to the decision to launch gels.  The only costs that are “relevant” are incremental costs—i.e., costs that gels cause, which don’t exist if gels are not introduced.  Using the principle of relevant costs for the gel launch decision, evaluate and resolve the argument among Wickler, Leiter, and Nanzen, summarizing the correct approach in your own words.

Week 4 Economies of Scope 
  Requires one post.
Another way to look at the launch is in terms of economies of scope.   Any company would like a new product that “fits” well with its existing infrastructure, expertise, experience, etc.  The benefit of the “fit” is that the company can produce and sell the product as part of its company portfolio of products at less additional cost than a start-up company could produce and sell the new product.  Think of all the costs a new company would incur to organize the company, staff it, acquire buildings, equipment, etc., learn how to formulate the product, learn how to manufacture it, develop supplier relationships to get inputs for the product, develop marketing, advertising, sales distribution channels, admin departments to oversee the company, legal, insurance, accounting, etc.  Now think about how gels could piggyback on HPC’s knowledge, expertise, experience, and infrastructure.  The more HPC’s existing resources can be used to produce and sell gels without requiring additional resources, the more economies of scope there are in adding gels to the product line. 

Starting with the definition of economies of scope, describe the economies of scope that HPC should be able to achieve with gels and bars.  How could you quantify the dollar benefits HPC could achieve through economies of scope?