Catawba Case Study

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.

10 * \$8,000 = \$80,000

Direct labor cost = 10*20*62.5 = \$62,500 = \$31,250

Marginal Benefit

\$80,000 (ten machines) – \$31,250 (Direct cost of Labor) – \$2,750 (Administrative expenses)= \$51,500

Net weekly marginal benefit

5751*10 = \$80,000 – \$57,510 (Actual Cost of ten machine) = \$22,490 = \$22,500

Reference

Harvard Business School. (June 28, 1994). Catawba Case Study: 9-191-053. Boston, MA: Harvard Business School Publishing.