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