Bridgeton Paper

operating costs. This could most effectively be accomplished in two ways. First, through a reduction in flying

5. An analysis of the individual customer accounts suggest that TFC’s current pricing model is ineffective. They are undercharging an alarming number of their customers thereby reducing their overall profitability. Based on this information, managers will hopefully elect to implement the services based pricing model so that customers are charged based on the services they are actually consuming. Ideally, changing the current pricing model will resolve the issue of customers reducing profit by 140% and 60% (Exhibit 8, numbers 3 and 4). If there are still profit draining customers, management should revisit and assess accordingly, either further increasing fees to those customers so their contribution is positive, or perhaps dropping these customers to increase overall profitability.

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

I would increase Big Al’s hourly rate up to $350 per hour for the three movers and a truck. The business could be relocated to a location with lower costs, and a 60-month lease in order to lock in their rates. The number of trucks could be decreased to six, which would increase the effective utilization of available assets. They could reduce their surplus of labor, which in concert with reducing the number of trucks, would increase their profit margins substantially. In order to maintain their current level of business with the increased prices, they could increase their advertising budget as well, to educate the consumer.

Increased promotion would increase revenue hours by up to 30%. Wu is unsure how much promotion this would take. (How much could be spent and still leave Salem Data Services with no reported loss each month if commercial hours were increased by 30%).

3. The new system allows charging additional services required by the clients, generating more revenue. 4. Knowing which are the cost drivers , it will be possible to control costs more effectively (reducing fixed costs and increasing net margin) 5. Market analysis with direct competitor in the region suggests that studio prices are at least 21% lower and one bedroom suite prices are at least 40% lower than the competition in the new pricing model. Comparison with the general market suggests similar findings. MAIN REPORT

The cost of implementation of the options: It deals with the technicians and the reduction in time of implementation. This leads to better customer service and increases efficiency of the technicians. Also considering a customer base reduction of 5% (Exhibit 2), $1 million dollars will be a prudent investment.

Option 2: Decrease Cost of Goods Sold and Expense by 20% due to the current economic climate.

i. Why was Dakota’s existing pricing system inadequate for its current operating environment? (Hint: Consider why ABC might be a good idea)

Now that the initial startup phase of our company is complete, our team of Analysts has determined what we have deemed reasonable costs, considering that our definition of “reasonable” aligns with yours. In order to defend our stance on what we feel is reasonable, we have considered the nature of costs, such as air travel for business meetings and the use of our high quality materials, by researching the market for affordable, high-quality materials and have put standards in place to keep air travel valid for these government contracts. With the understanding that although the nature of the cost may be considered acceptable, the amount of the cost may not meet standards when it comes to costs defined as “reasonable” (Murphy, John Edward; Guide to Contract Pricing, pg. 47). With this in mind, we continue to research the market to find adequate material at a much lower cost. We have used this data to create what we feel is a cost that would not and should not exceed what any prudent person would pay in a competitive business environment. We are aware of the competition and have made it a strong incentive of ours to save on costs for the items that we are providing to you. Allowability of our costs is guided by the 52 generally applicable cost principles that are based on specific laws and policies (Murphy, John Edward; Guide to Contract

* Hence, we decided to increase the sales force percentage time for segment D to 40% and for segment A to 30%. We decreased the sales force time percentage for segments B and C to 15% each. Also, we reduced the list price from $142 to $136.

a. Assuming the most current operational cost levels, what sales must it generate to recoup the above investment?

Pricing - we will mark up at least 20%, because we need to give our employee salary and store fee, sometime in holiday we will have discount.

Appraise the results of operations of Prestige Data Service. Is the subsidiary really a problem to Prestige Telephone Company? Consider carefully the differences between reported costs and cost relevant for decisions that Daniel Rowe is considering.

* Consistent and reliable pricing strategy: The Price system should be an hourly basis not daily. For instance, the resort charges $8 / hour for the use of a palapa. The resort needs to optimize their scarce resource wisely.