Nipponply: Analyzing the Feasibility of Geographical Expansion
(5 pages of text)
In December 2017, the managing director of Nipponply Distributors Private Limited (Nipponply) planned to expand his firm geographically. Nipponply provided plywood products to household consumers, architects, interior designers, and original equipment manufacturers. The company already operated in Gujarat, India, but the managing director had found an opportunity to expand into the western Indian states of Rajasthan, Maharashtra, and Madhya Pradesh, where there were large volume requirements in housing, corporate, and industrial projects. The managing director completed a market survey to determine cost- and market-related information. On the basis of his initial analysis, he decided to start an expansion project, but he first wanted to ascertain its feasibility using a cost–volume–profit analysis.
This case uses the context of a small- and medium-sized enterprise to illustrate how a cost–volume–profit analysis can be used to assess the feasibility of a project. After working through the case and assignment questions, students will be able to do the following:
- Use the CVP analysis as a tool to decide the quantity of products required for a break-even point.
- Evaluate the feasibility of a project idea.
- Determine the minimum capacity utilization to reach break-even.
- Analyze the impact of capacity utilization on return on equity and return on investment.
- Evaluate the level of capacity utilization needed to obtain the desired level of income.
India, Small, 2017
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