Question 1: Summary
Marge McPhee, the Catawba general manager, received information that shows that the organization needs to introduce a lightweight compressor. Catawba supplies industrial paint systems and other related industrial machinery and employs over 1200 individuals. Additionally, the company reports an average revenue of over $200 million per year. One of the few issues that persistently bothered the general manager was the pricing for the light-weight compressors. When priced at $5500, 31 units were sold that week. With incremental prices being $500 more than the previous listing, the units sold per week decreased significantly. At $6000, 30 units were sold whereas at $8,000 only ten machines were sold. The most appropriate pricing is $6,500. The average cost of the product was 5,951 per unit. As such, by pricing the product at $6,500, the organization makes $549 per unit. As such, if the product is sold at $6,500 the profit accrued would be $15,372 for the first week of sales since the average was 28 units per week at the aforementioned pricing.
Question 2: Proposed Price $8,000
Ten units per week.
Proposed Cost per unit = $8,000
10 * $8,000 = $80,000
Direct labor cost = 20 (Hourly wage)*62.5(Hours per unit) = $1,250
Actual output 10 units per day = cost per day 12,500
Other output = 10 units per week.
6.4375 units per week, at the cost of ten.
Marginal Benefit = 6.4375 units per day =
6.4375 * 8,000 per unit= 51,500
Net Marginal Benefit after opportunity cost
3.5625 * 8,000 – $1250 per unit = 28500
51,500 – 28500= 23,000
Harvard Business School. (June 28, 1994). Catawba Case Study: 9-191-053. Boston, MA: Harvard Business School Publishing.