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Anderson & Smith Plc, A&S Plc, is a company in the food processing industry. The company has gone from doing the traditional stuff like frozen pizza and burgers to offerings that resemble traditional home-cooked food like stews, soups, and various vegetarian dishes. Since about 10 years back the sourcing of ingredients comes from farms within a parameter of 40 miles from the processing plant. The production process is geared to limit waste and at the moment roughly 90% of all ingredients end up as sellable items. What is not used is recycled and sold back to suppliers as animal food or soil enhancement. An issue is that a product sold under the name "Grandmas Beef and Carrot Stew" has a waste of 22% and is a major headache for management as it is not only costly but might pose a potential marketing challenge if known by investors and the public. The operation is smooth but has its challenges as the consumption of energy using current machinery is high and the energy prices on the market is sky rocketing due to the transition from nucellar and fossil based to wind and solar based production of electricity. A&S Plc is a family business even if roughly 25% of its shares are listed on the stock exchange in London. Since a few years back the chairman is Arnold Smith and the CEO is Lucy Andersson. Lucy has recently hired John Gromwell as her CFO, Chief Financial Officer. Even if A&S is a successful company with a good reputation there are challenges ahead that you will encounter as you are presented with a number of issues John and Lucy need to attend to. From time to time Arnold interferes in their day-to-day life and he is a rather demanding figure.

It is indeed a lovely setting and after a month in office not much had occurred. However, this was going to be a different day. An SMS came in and it was Lucy who demanded his presence in her office. Lucy did not waste much time and went straight into the topic, Grandma's Beef and Carrot Stew. Lucy started; "I met with Harold Brown yesterday and we discussed how to reduce the waste and he delivered a rather intriguing proposal but it is a challenge that requires your full attention". Harold is the Operations Manager and also in charge of the laboratory. The thought process is as follows; If we invest in a new process we can get the waste down from 22,2% to 12,5%. However, it demands a new cutting machine and also an upgrade to our conveyor belt. In total, the investment amounts to 195 000 and we can sell the current machinery for 20 000 to a competitor. As waste is reduced direct labor will be reduced but we need to hire a quality engineer to ensure proper calibration of the new set-up and that will increase the overhead. Can you please handle this Lucy said and use a rate of return of 15%. Let us assume the economic life of this investment is 5 years. The yearly volume is 200 000 units. John spent the rest of the day with Harold and his team and came up with the new cost structure that is presented below. Until this point, John was comfortable but was in need of some help to finish off the analysis that Lucy was expecting. Please make the required analyze and deliver your view of whether the idea is viable or not.

Old GBCS New GBCS Sales Price 4.00 4.00 Ingredients - 1.75 - 1.75 Waste 0.50 0.25 Labour 0.15 0.10 Overhead - 0.10E 0.12 Depreciation - 0.30 - 0.35 Profit 1.20 1.43 ff f f f ff

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