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Essay / Research Paper Abstract
A 4 page paper examining the pricing problems at Pecos Printers, where the owner has determined a minimum price based on all costs. The owner refuses to accept any price below $300, which is valid until fixed costs are met. After that, the true costs of production are only the variable costs paid for with the sale of the printers being produced. The owner is foregoing additional profit by ignoring the concept of contribution margin. Bibliography lists 2 sources.
Page Count:
4 pages (~225 words per page)
File: CC6_KSacctMgmtPecos.rtf
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Unformatted sample text from the term paper:
has determined a comfortable and workable price for his companys new printer and has taken a hard-line stand on what offers the companys salespeople will accept from their distributors.
Paul has dictated that no salesperson (all work on straight salary, no commission) will accept a price lower than $300 per unit, a price based on fixed costs that does
not consider the implications of excess capacity (Tinsley and Stetz, 2004). The purpose here is to assess the true costs and benefits of several scenarios. 1. Evaluate Paul Pecos
decision rule. As far as it goes, Pauls decision rule is a good one. If Pecos sells most of its printers at
or higher than $300, then its new product should be profitable if the company sells the 10,000 that Paul believes is a reasonable figure for product introduction. Table 1,
"Original Rule" column illustrates the bottom line that the company can expect if it sells a minimum of 10,000 printers annually. Table 1. Costs, Sales and Profit Plant
Capacity 20,000 Original Rule New Rule Ms. Good-persons Order Totals of All Efforts Number of units 10,000 950 700 11,650 Price /unit 300 249 290 280 ave Total Sales 3,000,000
236,500 203,000 3,439,500 Manufacturing Costs Fixed (total) 450,000 Variable (per unit) 175 175 175 Selling & Admin expenses
Fixed (total) Variable (per unit) 30 30 30 Total variable costs 2,050,000 194,750 143,500 Total fixed costs 450,000
Contribution Margin/unit 95 44 85 75 ave Net Income $500,000 $41,750 $59,500 $601,250 2. Evaluate Paul Pecos reaction to Ms. Goodpersons
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