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TENALPINA TOOLS: PRODUCT LINE EXPANSION Now comes the real test, Giulia thought to herself, evaluating my idea for expanding the product offerings. She gathered up her notes and opened a blank spreadsheet file on her laptop. Just a few months ago, Giulia Ferratos fledgling business, TenAlpina Tools, was at a crossroads. The contract manufacturer of her only product, rock climbing pitons, wanted to sell his business and retire. Meanwhile, her customer wanted to quadruple purchase volume under an exclusive relationship. She had performed an initial analysis of the profitability of running the factory herself and found it less than reassuring. In the end, however, she felt that controlling the production facility was an opportunity she couldnt pass up. Now she wants to offer a new product line to take advantage of the underutilized capacity in hopes of improving the companys financial situation.

The Beginning About a year ago, when Giulia returned from her internship between the first and second years of her MBA program, she began to research the potential to produce high-quality pitons from titanium. Pitons are like flat spikes, and rock climbers hammer them into crevices in the rock wall in order to attach support lines, making them a critical tool for the climbers. She was able to design a piton made of titanium that offered superior tensile strength while weighing significantly less than the standard steel alloy product. She also found a company that did drop-forgingan integral part of the production processwhich had excess capacity and could produce the product in volumes Giulia believed she could sell.

TenAlpina is adding a new product line, which will add some new costs as well. Based on Giulias estimates, and assuming that the volumes for piton production and sales do not change, how many wall hammers would TenAlpina Tools have to sell in order to have the same annual gross margin (in dollars) as it would have if only pitons were sold? That is, at what demand level for hammers would Guilia be indifferent (from a total profitability point of view) as to whether or not to add the new product line?

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