Case 2: Cumberland Metal Industries

B. If selling on value, what “value” are you planning to sell (Quality, Product Specs, Delivery, a trusted brand)? Use the Market Information Report (Product Dimension Preferences and Product Dimension Sensitivities tables) to explain your decision.

6. How does the current reimbursement level of $140,000 per case affect a decision to use or not use marginal cost pricing? Does the amount of excess capacity affect the decision? Why?

Advanced Fuels Corporation (AFC) was founded five years ago by Dr. Zachary Aplin. In the fourth year of research he and his two –member staff made a major break-through that can convert grain waste products into ethanol which can mix with gasoline to produce a better burning automobile fuel. Producing ethanol from waste products would lower its cost dramatically so the market potential of the blended fuel would be increased. After AFC receiving a patent for Dr. Aplin’s unique ethanol production process he decided to broaden the scope of operations of the company but he doesn’t have additional funds to put in. So, he developed

MTC initially needed to obtain substantial investment capital due to two main factors: a research-heavy industry, and the need to create most of the markets for its products. Although the founders' goal was to become a major manufacturing company, they did estimate that the company would need $50 million in capital before it would become self-sufficient. Their initial financing model was to first recruit a superior technical team, use that to attract additional equity investment and development funding from interested corporations, and then develop manufacturing capabilities. Commercial sales began 2.5 years after inception, and MTC is nearing the break-even point in 1990.

This memo is intend to present appropriate treatment of the ARO estimation problem experienced by the Lack of Information (LOI) based on the findings from interviews with all 50 of the warehouse managers and on-site visits at each of the 50 locations of its warehouses countrywide. The onsite observations search for any evidence of damages in both the on-site property like the roof, walls, floors and general conditions. The interview with the managers obtains information about the characteristics of the warehouses that are not readily observable. The information obtained is very important in the preparation of the fiscal

Herein will begin with an overview and introduction from personal knowledge of DixieLands Glory, LLC; a small family owned and operated business for the purpose of owning and managing rental properties. The company was initially operated as Warf’s Rentals; in 2003 the business was renamed and incorporated to become DixieLands Glory, LLC. The business is operated from a small office located in the family’s home, which is located in Linden, Tennessee. DixieLands Glory owns, operate, and manage approximately eighty-five rental units ranging from single-family homes to 4-plexes and mobile home parks. The properties that the company owns are mostly located in the states of Tennessee and Alabama. Of this, about 50 percent are located in the family’s hometown of Linden, Tennessee, with the remainder being located in two other Tennessee counties, and Decatur, Alabama.

Morris Mining Corporation owns and operates mining facilities that are located in the United States, and Canada. This company primarily distributes extracted ores and minerals to their customers. Recently, in January 2015, Morris Mining acquired the mining company King Co. Once the company has been acquired, Mining Morris plans to record the difference of the purchase price and identifiable net assets as goodwill. The identifiable assets and liabilities of King Co. are going to be recorded at fair value on Morris Mining 's books. There has been discussion as to how the company is going to report the fair value for the patent that is part of the assets they acquired from King Co. Rob, an audit manager on the Morris Mining engagement, and Gabriela, the audit senior, are trying to evaluate if the method of the fair value estimate it reasonable.

(If the company produce the BB first, the company will buy 4000 labor hours, and it will use 2500 for BB and the remaining hours to produce WRM = 1500.

CMI was first manufacturer for CM pads, there was no direct competition and no available selling price in the market that CMI can take reference to. In view of that, CMI could use two test results of Kendrick and Corey to determine the economic value of CM pads. According to the Appendix I, the average economic value of CMI pad was 3,304. This value had taken into account of less CM pads required per job and the cost saving in equipment and labor . But the value to the customer should be higher due to some intangible advantage, for examples, lower accident claim as fewer set changes required for CM pads. Besides, lower health claim as CM pad contained non-toxic material. In order to gain the market share for this new product, we would recommend CMI to set the price of CMI pad around 85% of economic value, saying 2,805, promote to the market that it was much cheaper to use CM pads with superior performance and cost efficiency. Besides, different discounts can be granted to the customers depend on the length of the contracts signed and volume of the pads purchased, ranging from 10% to 25%.

There is certainly a market for this product. It is the market that is currently dominated by asbestos pad and micarta slab users, and is comprised of uneducated (about cushion pads) and price-sensitive customers. Prior to CMI’s involvement, “the pile-driving industry had paid very little attention to cushion pads.” There was no dominant manufacturer, little-to-no branding, and ambiguous distribution channels.

The savings for the customer, however, comes from the savings in labor costs. Estimating a total of $714 labor costs/hour (Exhibit A), the approximate labor savings totals $5.08/foot driven (using Sanwal’s conservative estimates of 292,000,000 feet driven per year, page 5). Comparatively, CMI pads result in only $3.57/foot driven. On a job of 15,000 feet, the difference in value is $22,650 in saved labor costs alone. Consequently, a customer should be willing to pay $5.28/foot driven for the CMI Cushion Pads (see Figure 4). With this value-added, CMI can charge up to $2,837 for one pad, which would make the price exactly as much as the cheapest competitor (including labor costs). With that price, CMI would only have to sell 21,854 pads (which would service approximately 12% of the market, a feasible goal for CMI’s entrance) to make $62,000,000.00 (VP Joseph Fernandez’s approximate sales goal). The recommended CMI price, however, is $1986.34 (which is the value-capturing price of $2,837 with a 30% reduction). With an estimated 292,000,000-390,000,000 driven feet per year, the pile-driving

A few weeks earlier, John M. Case, board chairman, president, and sole owner of the

Therefore, the value of the CMI pad to a customer is $1,420.1333($8,520.8 / 6pads required in total) in the Colerick project and $1,904.16($9,520.8 / 5pads required in total) in Fazio project. The highest estimate of the value of the CMI pad to a customer (EVC) is $1,904.16 per pad.

Cumberland Metal Industries (CMI) should price their new cushioning pads at $900 to maximize profit. CMI should begin by targeting the customers that will find the greatest value in the product an pay the most. This allow the company to maximize unit contribution, and leave available options for dealing with future competition and sales challenges.

Case Analysis: Blanchard Importing and Distributing Co. Inc. (HBS Case 9 - 673 - 033)