Case Analysis

Net-X Inc.
MGT 113-T

July 27, 2010

I.

POINT OF VIEW I take the point of view of a consultant. This is to avoid biases in the decision making about whether to establish or not a network gaming business. I aim to give an outcome not showing what I want to happen but an outcome that is more practical and profitable for Villavicer and Aguinaldo.

II.

HIGHLIGHTS OF THE CASE Network gaming become famous, thus, increased its demand in the market. Jonathan Villavicer, wanting to venture in this kind of business and to increase his income, had the idea of establishing his own network gaming station. He already found a suitable location in Muntinlupa. His current job had enabled him to form close connections with computer suppliers who promised to give him preferential prices. Villavicer, having not enough financial capability to start the project on his own, invited his cousin Aguinaldo to this project venture. Apparently, the two still have to come up with a decision whether they will continue the establishment of network gaming or not.

III.

PROBLEM STATEMENT The problem of the case that I saw was the decision making of Jonathan Villavicer and Monica Aguinaldo if they will continue the project on entering in a network gaming business.

IV.

POSSIBLE SOLUTIONS 1. Villavicer and Aguinaldo will not enter the network gaming business and continue their current jobs. 2. Villavicer and Aguinaldo will enter the network gaming business and resign their current jobs to work full time in their new business. 3. Villavicer and Aguinaldo will invest in the network gaming business while still working in their current jobs.

GUIDE QUESTIONS a) Compute for the variable cost rate per hour and monthly fixed cost. Variable Cost Electricity Fringe benefits - P60/hr - P2/hr P62/hr Fixed Cost Rent Total depreciation Telephone Water 2 Supervisors salary 4 Staff Crew salary - P10,500/mo. 19,972.23/mo. 1,500/mo. 400/mo. 17,000/mo. 28.080/mo. P77,452.23/mo. 27,000/mo. 900/mo. P27,900/mo.

b) Compute for the Companys breakeven price rate. BEP = TFC + TVC = P77,452 + 27,900 = P105,352.23 BEP Price Rate = P105,352.23/{30x[(5x20)+(10x20/2)]} = P17.55/hr *5hours at peak and 10 hours at 50% average usage rate, 30 days in 1month. c) Will the business be profitable at the P20.00 price rate? P20x5 = P100 100 x20 = P2000/day (peak) P20x10 = P200200x(20/2) = P2000/day (off-peak hours) = P4000/day or P120,000/mo. P120,000 105,352.23 = P14,647.77 income *Yes, the business will be profitable at the P20/hr price rate. d) What price rate should be established in order to reach the minimum net income level that will convince Villavicer and Aguinaldo to resign from their current positions and in order to work fulll time in Net-X? Sales = Desired Profit + FC + VC = P71,428.60 + 77,452.23 + 27,900 = P176,780.83

P176,780.83/30days = P5892.69 P5892.69/[(5x20)+(10x20/2) = P29.26 or P29/hr *65% of income for Aguinaldo *35% of income for Villavicer

V.

RECOMMENDATION The first alternative is more pratical if we will look at the computations. It is good but it is not the best solution for the problem of Villavicer and Aguinaldo. The second alternative can be said as impractical. We can say that computer gaming business is profitable but the income they can get in this business is lesser than that of the income they are earning in their current jobs. Increasing the price rate to about P29 or P30 cannot be considered a solution to the problem because as mentioned in their market study, their market is only willing to spend P20 to P25 only. If they decide to go above the marketable price, the number of their costumers might go down. As a consultant, I choose the third alternative as the best solution which encourages Villavicer and Aguinaldo to enter the network gaming business while continuing to work in their current jobs since they have two supervisors at four staff crew that will work for the business. By doing this, they will be receiving their salaries from their original jobs and at the same time, they will be receiving an additional income from the new business.

Implementation 1. Assuming that Villavicer and Aguinaldo still have no enough money to start the network gaming business, first, they should earn enough money from their current jobs in order to have enough capital for the business they are planning. 2. Second, they can start with 20 computer units as they have planned and hire trusted supervisors and staff crews, these people may be close friends of the two or relatives, in charge of the computer shop so that they can work in their original jobs without worrying too much about their network gaming business. 3. If the network gaming business will be profitable after some time, the management can decide to have additional computer units of about 10 since the area can accommodate a maximum of 30 units. This may also increase their net income.