30060 Management Second mid-term exam - Mock Up

FIRST TURN

Use two separate sheets for parts A and B. You have 90 minutes to complete the exam.

The final grade of the second partial exam will be the weighted average of the two parts: the
first part will count for 50%, the second part for 50%.

A minimum of 14 points in each part is required in order to pass the exam.

A. Essay questions [30 points total]

1. What are the main types of competitive advantage? Describe sources of each of them and
provide examples. [10 points]
2. Describe the differences between strategic alliances and Acquisitions. Please, analyse the pros
and cons of the two options referring to case study discussed in class. [10 points]
3. What is the organizational culture? Please provide a definition, and illustrate what are its key
elements. [10 points]

B. Exercise

Managers at “Moose Water”, a producer of bottled water from Alaska, are considering the possibility of
investing in additional facilities and internalising the production of plastic bottles. Up to now, the
company was buying the plastic bottles from an external supplier and paying €0.05 per plastic bottle.
The cost structure of the two options is shown in the table below:

In-House Outsource
Additional investment in the new facilities 200,000 -
Expected life of the new facilities (years) 25 -
Maximum capacity 310,000 560,000
Indirect labour cost 25,000 20,000
Maintenance 14,000 11,500
Overheads 10,500 7,500
Direct labour cost (per unit) 0.09 0.07
Plastic bottles (per unit) 0.04 0.05
Components (per unit) 0.12 0.14
Energy (per unit) 0.02 0.02

The company is expecting to sell 190,000 bottles of water next year (year 1) and 240,000 in the second
year, both at a price of €0.55 each. No reliable forecasts are available for the following years.
a) Compare the alternatives in the next 2 years and advise the management. Which option should
they decide for? Why? [14 points]
b) What other factors should the management take into account when making this decision? List
the factors and discuss them! [3 points]
c) Calculate and discuss the difference in the average costs of our plant between the two years.
What is the underlying source of that difference? [3 points]
d) Assume now that the market forecasts were found to be unreliable. Managers still want to sell
the bottled water at €0.55 each. Under these conditions, which option should they choose?
Why? [10 points]