Athens Glass Works
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Transcript of Athens Glass Works
Athens Glass WorksIPMI July 2011
Decision Analysis
Group 2
Sales & Price
Year
Quarter
Sales Volume Percentage Sales Price
AGW Competitors AGW Competitors AGW Competitors
1991 1 241 443 35% 65% 2.05 2.05
1991 2 313 592 35% 65% 2.05 2.05
1992 1 204 381 35% 65% 2.15 2.15
1992 2 269 513 34% 66% 2.15 2.15
1992 3 251 456 36% 64% 2.15 2.15
1992 4 238 672 26% 74% 2.36 2.15
1993 1 139 474 23% 77% 2.36 2.15
1993 2 162 642 20% 80% 2.36 2.15
Production Cost
Production Volume (000 sq. ft.)
150 175 200 225 250 275 300 325
Material 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45
Energy 0.38 0.36 0.36 0.35 0.35 0.37 0.37 0.38
Labor 0.32 0.31 0.3 0.31 0.33 0.35 0.36 0.38
Shipping 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11
General Overhead 0.08 0.08 0.08 0.08 0.08 0.09 0.09 0.09
Depreciation 0.27 0.23 0.2 0.18 0.16 0.15 0.14 0.13
Manufacturing Cost 1.61 1.54 1.5 1.48 1.48 1.52 1.52 1.54
Selling & Admin Costs 0.72 0.69 0.67 0.66 0.67 0.68 0.68 0.69
Total Cost 2.33 2.23 2.17 2.14 2.15 2.2 2.2 2.23
Costs
• Fixed Cost:- Selling and Admin Cost- Depreciation*
• Variable Cost:- Material- Energy- Labor- Shipping- General Overhead
Sources:
-http://en.wikipedia.org/wiki/Contribution_margin#Examples
-http://www.blurtit.com/q386698.html
-http://wiki.answers.com/Q/Is_depreciation_on_equipment_fixed_or_variable
Influence Diagram
Price Profit
Revenue
Total CostUnits Sold
Variable Cost
Fixed Cost
*source: Bodily, page 20-22
Questions
To restore the market share, should AGW maintain selling price in $ 2.36 or lower the price? while taking into account the company's profit
Assuming
The forecast of Q4 1993 market = 920,000 square feet and with current price,the sales won’t fall below 150,000
Scenario 1• Back to $ 2.15 price
Condition :
Market Share = 35%
Volume = 920,000
Sales = 35% x 920,000
= 322,000
Price per unit = $ 2.15Total Cost per unit = $ 2.23 . Profit/Loss per unit = -$0.08
Total Profit/Loss = Sales x Profit/Loss per Unit= 322,000 x -$0.08= -$25,760 LOSS
Scenario 2• Back to $ 2.36 price
Condition :Sales = 150,000 (loyal customer) Volume = 920,000
Market Share = 16 %
Price per unit = $ 2.36Total Cost per unit = $ 2.33 . Profit/Loss per unit = $ 0.03
Total Profit/Loss = Sales x Profit/Loss per Unit= 150,000 x $ 0.03= $ 4,500 Profit
Scenario 1• Back to $ 2.15 price
Condition :
Market Share = 35%
Volume = 920,000
Sales = 35% x 920,000
= 322,000
RevenuePrice per unit x Sales = $ 2.15 x 322,000
TOTAL REVENUE = $ 692,300
CostFixed Cost = Selling & Adm. Cost + Depreciation
= $ 0.69 + $ 0.13 = $ 0.82
Variabel Cost = ($ 2.23 - $ 0.82) x 322,000 = $ 454,020
Contribution Margin* = $ 238,280
= 34.4 %Profit* http://en.wikipedia.org/wiki/Contribution_margin#Examples
Scenario 2• Back to $ 2.36 price
RevenuePrice per unit x Sales = $ 2.36 x 150,000
TOTAL REVENUE = $ 354,000
CostFixed Cost = Selling & Adm. Cost + Depreciation
= $ 0.72 + $ 0.27 = $ 0.99
Variabel Cost = ($ 2.33 - $ 0.99) x 150,000 = $ 201,000
Contribution Margin = $ 153,000
= 43.2 %Profit
Condition :
Sales = 150,000 (loyal Customer)
Volume = 920,000Market Share = 16%
DecisionMinimum Cost = $ 2.14
Production Volume = 225,000 Market Share = 225,000 / 920,000
= 24.45%
Price per Unit
$ 2.36 $ 2.15 = 35 %$ 2.36 Price? = 24.45 %Price = $ 2.21
Profit2.21-2.14 = 0.07 * 225.000 = $ 15.750
Contribution Margin2.21 - (1.48 - 0.18) = 0.91 * 225.000 = $ 204.750
= 41.17 %
Revenue = $ 2.21 * 225,000
= $ 497,250
In conclusion
Lowering the price $ 2.21
Sales Volume Target 225,000 (24.45% market)
Profit $ 15.750
Contribution Margin $ 204,750
Contribution Margin Ratio 41.17 %
ThankYou