Cocoa Price Sensitivity Assignment
This activity uses information included in the following D2L Module #1 resources:
- Web Page: “Major chocolate brands fail to address child labor, sustainability in their supply chains” found in the Resource & Lectures section of Module #1.
- Video: “Cross Over Analysis Example” found in the Resource & Lectures section of Module #1.
After you have reviewed the above content, complete the following.
The time is September of 2020. Mars Inc. is concerned about the imminent Cocoa Cartel scheduled to be in force in October of 2020.The cartel will add a premium of $400 to the cocoa price per tonne. While Mars supports the initiative on the surface for the potential positive effects on the three affected countries’ cocoa farms, they are concerned about the cost impact on their supply chain.
Your supervisor has asked you to analyze if Mars Inc should consider moving their suppliers from countries that will be affected by the Cartel elsewhere. It is your duty to analyze all factors and to make a recommendation to your supervisor, the SVP Supply Chain. Analyze the impact that the Cocoa Cartel premium might have on your business.You will need to perform a cross-over analysis based on the proposed premium and sourcing cocoa from non-cartel countries. For this analysis, assume there are viable sources outside cartel countries that can accommodate your demand.
Cocoa price per tonne (Variable Costs): find the spot price of cocoa per tonneusing the following website to determine the US$/tonne of cocoa:https://www.nasdaq.com/market-activity/commodities/cj:nmx.Clearly identify the date of the price you used. The price quoted on this website will be the US dollar price per tonne. This price is the variable price per tonne of cocoa without any price premium. The new cartel price will be $400 + the current price.
Fixed Costs: The fixed costs specifically allocated to cocoa production from Cocoa Cartel countries are currently $15,000,000 ($15 million) annually. Suppose Mars changes their production processes to use cocoa from different countries outside the cartel. In that case, there will be a one-time cocoa production cost of $351,000,000 ($351 million) in 2021 (in addition to the original $15 million) due to a one-time investment in new processes and equipment required to accommodate the different cocoa sources and retain the same quality chocolate. The $351 million expense will be fully incurred in the first year.
Cocoa Utilization: Mars uses 430,000 tonnes of cocoa on an annual basis
Step #1 – Set up an Excel spreadsheet to calculate the cross-over point in cocoa tonnes’. You will need to create a data table containing the total costs for each option at different increments of cocoa (tonnes) used. Calculate the exact cross-over point in tonnes of cocoa and dollars where each option’s total costs are equal. (Hint – the video in D2L provides an example).
Step #2 – Create a cross-over graph to visualize the analysis. You will lose points if you do not have all of the following chart elements: a descriptive title, x-axis title, y-axis title, and a legend. You need the following data series graphed:
- Scenario 1: Non-cartel: Total Costsinclude a lower price of Cocoa and a 1-time additional investment of $351M in addition to current $15M fixed costs
- Scenario 2: Cartel: Higher price of Cocoa and fixed costs of $15M.
Step #3 – Analyze your cross-over point and the volume in tonnesof cocoa that Mars will need to use to make the cost for either scenario the same. Calculate the total cost at this cross-over point, where the total cost for either scenario is the same. Include both of these numbers in the spreadsheet, clearly labeled.
Step #4 – Answer the following questions somewhere in your Excel document.
Should Mars move its cocoa suppliers to countries outside of the Cocoa Cartel? You need to clearly make a recommendation either Yes or No. Justify your answer.
Here are some factors you may consider
- Does Mars use enough cocoa to offset the increased fixed costs by sourcing cocoa from other countries)?
- Will historical trends affecting the price of Cocoa influence your recommendation to Mars?
- What other non-financial factors should Mars consider in this case?
- What ethical and non-financial factors should Mars consider? How will this influence your decision?
This question requires you to research non-financial (not involving money) aspects of cocoa growing and production. There are many sources of information on the internet dealing with the ethical aspects of chocolate production.
Submit two documents to the D2L assignment dropbox:
- a Microsoft word compatible document with your answers to number 4 AND any visual aids you may need to justify your answer (you should probably include a cross-over analysis graph- watch the videos in D2L and
- AMicrosoft Excel-compatible file with your data table and graph. Your excel sheet should have only one sheet. If your math is incorrect, this excel file will be the only way I can tell if your process was correct and you simply made a mathematical error.
Cite your references using any generally accepted citation format (e.g., APA, MLS, etc.).
Use good grammar and spelling. Get help if you need it (Grammarly is one option provided to Jones College of Business students at no cost). Your grade factors in grammar, punctuation, and writing style. I highly suggest you proofread and spell-check your document.
Assignment Learning Objectives:
- Evaluate Ethical Implications of Supply Chain Sourcing Decisions
- Analysis of the impact of Supply Chain Operational decisions on cost structure
Read the attached material and watch the Crossover Analysis video associated with this module prior to completing this assignment.
Please click on the assignment and complete it according to the attached instructions.
https://www.youtube.com/watch?time_continue=26&v=vn6bzHyqw0Q&feature=emb_logo
