Beauregard Textile
Economic Memo 3
Beauregard Textile Company Case
1) If Beauregard Textile Company dropped its price on T-30 from $4/yard to $3/yard, its profitability will increase, assuming Calhoun & Pritchard maintains its current pricing at $3/yard.
The relevant costs for this analysis are Direct Labor, Material, Material Spoilage, and Direct Department expense.
Other expenses are sunk costs and have been allocated to T 30 costs in the case data.. Some of these have been done by following accounting rules to cover costs that overlap with other items. These items are excluded from the cost calculation and include General Overhead, Selling and Administration and Indirect Department Expense.
Assumptions and observations:
The total market demand is stable at approximately 225,000 yards.
Customers switch suppliers based on lower price.
BTC C & P
Price $4.00 $3.00
Direct Labor .800 .740
Material .400 .400
Material Spoilage .040 .038
Direct Dept Expense .120 .100
Total Relevant Costs/yard 1.36 1.28
Profit 2.64 1.72
Total 75000yds $198,000 15000yds
$258,000
Table 1 BTC at $4/yard and P & C at $3/yard
BTC C & P
Price $3.00 $3.00
Direct Labor .760 .780
Material .400 .400
Material Spoilage .038 .040
Direct Dept Expense .100 .112
Total Relevant Costs/yard 1.30 1.33
Profit/yd 1.70 1.67
Total 125000yds
S212,500 100,000yds
$167,000
Table 2 Beauregard Textile and Calhoun & Pritchard at $3.00/yard
From the above tables it can be seen that Beauregard will increase its profits from $198,000 to 212,500 by decreasing its price to $3.00. The increased profit comes from increased market share.
2) If Calhoun & Pritchard decide to raise its price from $3/yard to $4/yard, and Beauregard Textile Company maintains $4/yard, BTC’s profitability will increase.
If C & P raise their price to
Beauregard Textile Company Case
1) If Beauregard Textile Company dropped its price on T-30 from $4/yard to $3/yard, its profitability will increase, assuming Calhoun & Pritchard maintains its current pricing at $3/yard.
The relevant costs for this analysis are Direct Labor, Material, Material Spoilage, and Direct Department expense.
Other expenses are sunk costs and have been allocated to T 30 costs in the case data.. Some of these have been done by following accounting rules to cover costs that overlap with other items. These items are excluded from the cost calculation and include General Overhead, Selling and Administration and Indirect Department Expense.
Assumptions and observations:
The total market demand is stable at approximately 225,000 yards.
Customers switch suppliers based on lower price.
BTC C & P
Price $4.00 $3.00
Direct Labor .800 .740
Material .400 .400
Material Spoilage .040 .038
Direct Dept Expense .120 .100
Total Relevant Costs/yard 1.36 1.28
Profit 2.64 1.72
Total 75000yds $198,000 15000yds
$258,000
Table 1 BTC at $4/yard and P & C at $3/yard
BTC C & P
Price $3.00 $3.00
Direct Labor .760 .780
Material .400 .400
Material Spoilage .038 .040
Direct Dept Expense .100 .112
Total Relevant Costs/yard 1.30 1.33
Profit/yd 1.70 1.67
Total 125000yds
S212,500 100,000yds
$167,000
Table 2 Beauregard Textile and Calhoun & Pritchard at $3.00/yard
From the above tables it can be seen that Beauregard will increase its profits from $198,000 to 212,500 by decreasing its price to $3.00. The increased profit comes from increased market share.
2) If Calhoun & Pritchard decide to raise its price from $3/yard to $4/yard, and Beauregard Textile Company maintains $4/yard, BTC’s profitability will increase.
If C & P raise their price to