GIBERSONS GLASS STUDIO CASE

Main Issues In The Case

Mr Giberson is a skilled glassblower who is facing financial difficulties in his business. His resources are draining out
quickly due to the following reasons:
1. He lacks the proper bookkeeping mechanism following his divorce with his wife since earlier his wife used to take
care of the bookkeeping activity
2. He seems to be lack knowledge about the profitability of his 4 products glasses, paper weights, tumblers and
vases
3. He hasnt come up with a concrete pricing strategy to maintain profits after accounting for the costs and his
wages
After analyzing the data about the Gibersons company, it appears that Mr Giberson is under-utilizing his resources,
namely the raw materials and time in addition to the inefficient pricing strategy for his products.

Issue Diagnosis
We can assess these factors individually and accordingly come up with recommendations to improve the end motive of
profitability.
1) Raw Materials: The total weight of raw material that were used during manufacturing was 39.3 lbs (after
calculations) while the total weight of raw material scrapped was 50 lbs. We have the available batch size of 200
lbs. Thus the resultant percentage utilization of raw materials is just (39.3 + 50)/200 = 45%. While the Cost per
batch is $21.42 , the overall cost per year is $21.42*40 = $856.80
Suggestion: Giberson is reluctant to reduce the quantity of the batch to preserve quality. But, if he can reduce the
quantity by half while still preserving the proportion of ingredients, he can save $428.40 per year
2) Time: After doing some calculations over the total Hot Time needed to produce the 4 items (roughly 19 hours)
over a week and comparing it with the total available Hot Time which is 5*6=30 hours since Giberson blew glass
from Tuesday to Saturday. So this leaves us with the percentage utilization of 18.58*100/30 = 62% which can be
definitely improved upon.
Suggestion: Giberson could use this time to full capacity to produce more items. He could also use this time to expand
his portfolio by taking new requests from his customers.
3) Pricing: To find the right pricing strategy we first need to calculate net profit/loss that the firm is currently
incurring. After doing the calculations, the total revenue that was generated in a year was $31,000. While the cost
of the raw material per year was roughly $850. Also the operating costs comes out to be ~$57000. Thus the total
profit is $31000 - $850 - $57000 = - $26850
Thus the business is currently generating a loss of around $26850 per year
4)

Profitability of individual items: After taking the fixed and variable costs into account, we calculate the overall
cost for producing each item. Then we compare the overall cost to the selling price to determine the profitability
of each item. What we find is that Vase is the most profitable amongst the 4 items. Also, the other 3 items seem
to be highly underpriced.
Suggestions:
a) The company should correctly price the other items apart from the Vase.
b) They should utilize the extra hot time to produce more vases since it is the most profitable.