Economics of Cost - Berkshireco Case1

In: Business and Management

Submitted By hughcyy
Words 1058
Pages 5
This case is set in an "industrial commodities" firm in New England in 1974, as American dominance of world markets was slipping away. The case is about basic cost analysis issues. Or, is it? In February 1974, Brandon Cook was appointed general manager by Joe Magers, president of Berkshire Threaded Fasteners Company. Cook, age 56, had wide executive experience in manufacturing products similar to those of Berkshire. The appointment of Cook resulted from management problems arising from the death of John Magers, founder and until his death in early 1973, president of the company. Joe Magers had only four years experience with the company and in early 1974 he was 34 years old. His father had hoped to train Joe over a 10-year period, but the father's untimely death had cut this seasoning period short. The younger Magers became president after his father's death, and he had exercised full control until he hired Cook. Joe Magers knew that he had made several poor decisions during 1973 and that the morale of the organization had suffered, apparently through lack of confidence in him. When he received the income statement for 1973 (Exhibit 1), the loss of over $70,000 during a good business year convinced him that he needed help. He attracted Cook from a competitor by offering a stock option incentive in addition to salary. The arrangement was that Cook, as general manager, would have full authority to execute any changes he desired. In addition, Cook would explain the reasons for his decisions to Magers and thereby train him for successful leadership upon Cook's retirement. Berkshire Threaded Fasteners Company made only three lines of metal fasteners (nuts and bolts)the 100 series, the 200 series, and the 300 series. These were sold by the company sales force for use by heavy industrial manufacturers. All of the sales force, on a…...

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