While on vacation in July 2016, you had a conversation with another vacationer, Darryl Barnes, whom you had never met. You two were sitting on the beach and somehow the conversation turned into a discussion of a business scenario that involved a business owned and operated by Darryl’s sister, Shenice, and her husband, Steven.
It appears that Shenice and Steven Parks own and operate a company that manufacturers two models of home generators. The generators are known as Normgen V and Hulkgen IV. The capacity difference between the two model is significant, whereby the Hulkgen IV has twice the performance capacity of the Normgen V model. The manufacturing process involves using the same production machinery and equipment.
According to Darryl, the contribution margin of the Hulkgen IV is three times (3x) as high as that of the Normgen V. The company is producing at 100% capacity and has been at that capacity level for the past 3 years. Having engaged in several discussions with Shenice and Steven, Darryl has the impression that they want to increase the production of the Hulkgen IV model and reduce production of the Normgen V. Darryl believes, with hesitation, that Shenice and Steven are on the right track.
After finding out your area of expertise and experience, he has asked you to give some serious thought to the scenario. Then, once you get home from vacation, write a letter to Shenice and Steven that outlines the analysis that should be performed before any decisions are made. Darryl says that your letter should as clear as possible, i.e., easy to interpret. You are free to include hypothetical, numerical illustrations for maximum clarity.
You have agreed to serve as a consultant to Mr. Barnes and the Parks. This initial engagement will involve compensation for your services and provide public relations for your consulting company that you have just started.