Analyze the impact of the cocoa cartel premium

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Reference no: EM133646836

Assignment:

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.

Analyze the impact of the Cocoa Cartel premium. You need to perform a cross-over analysis based on the proposed premium and sourcing cocoa from non-cartel countries. For this analysis, assume that the cocoa supply outside the cartel will be enough to accommodate your demand.

Cocoa price per tonne (Variable Costs): find today's spot price of cocoa per tonne. Use the following website to determine the US$/tonne of cocoa: 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:

Non-cartel: Total Costs
Cartel: Total Costs

Step 3 - Analyze your cross-over point and the volume in tonnes of 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.

Reference no: EM133646836

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