Question1: Will Natalia lose money if she accepts the Brazilian offer? Explain.
Answer: Yes, Natalia will lose money if she accepts the Brazilian offer. Because the total production cost per unit for the Pippi is $10 and they offer only $8 per unit. This cost is really very low as compared to cost of production. 20,000 Pippi bags are requested and if one bag has a cost of $10 and 20,000 bags cost is $200,000. But if the price is $8 than the total cost is 160,000 and there is direct loss of $40,000. From the overall case study we can say that if Natalia accepts the offer then she will lose money. In this case, production house is operating at 70% capacity. If the capacity utilization is increases, automatically the fixed cost per unit will be decreased. According to calculations, if Natalia increases capacity utilization to 100% then she can produce (100000*100)/70=14850 units approximately and per cost will be (500000/142850)=3.5+5=$8.5/unit. It shows that she will lose the money if she accepts the offer.
Question 2: What factors other than costs and revenue should be considered in this case?
Answer: - Brand image is main factor other than costs and revenue should be considered in this case. Because if they accept the offer then, there are chances that the brand image may be effected and because of that, may be they have to reduce their prices in America and Canada too. That will be big loss for them. The product will sold in Brazil at very lower price as compared to US. The another thing is Natalia wants to enter in South American market and its very important for her to check market price and brand image of the product.
Question 3: What would you recommend to Natalia?
Answer: I would like to advise Natalia that she does not accept that offer. That offer is not a good way to enter in Brazil market, because it will affect her whole business in America and Canada market too. She can talk and conduct meeting with Brazilian retailers and can tell...