Cramer Cookie Company is a relatively new company and so far has sold its products only in its home country, Denmark. In December, Cramer determined that it had excess capacity to produce more of its special Christmas cookies. It is trying to decide whether to use that capacity to ship a batch of cookies overseas. The marketing department has determined that the United States and Great Britain are the two most viable markets. Cramer has enough excess capacity to produce only one batch, which can be shipped to either country. The materials and labor cost to produce the batch amount to 8,500 kroner. The marketing department, which located a U.S. shipping company that could deliver to either location, also provided the following information:
| United States | Great Britain |
Shipping cost | 3,000 U.S. dollars | 2,000 U.S. dollars |
Duties/customs charges and miscellaneous selling expenses | 400 U.S. dollars | 480 British pounds |
Total sales revenue | 5,200 U.S. dollars | 2,800 British pounds |
Exchange rate data | 1 krone = 0.147 U.S. dollars | 1 krone = 0.088 British pounds |
Instructions
a. If Cramer exports the batch to the United States, what is its estimated profit/loss in Danish kroner?
b. If Cramer exports the batch to Great Britain, what is its estimated profit/loss in Danish kroner?
c. If the British pound has exhibited rather large fluctuations relative to the Danish kroner recently, how might this impact Cramer’s decision as to which country to ship to?
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