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Cumberland Case Analysis Essay examples

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EXECUTIVE SUMMARY
Cumberland Metal Industries is evaluating a new product that makes pile driving less costly and more efficient. The product is a cushion pad made from curled metal that prevents the shock of a hammer from damaging the hammer or the pile. Currently the industry uses asbestos pads and is the only form of competition the company faces. If adopted there is potential to sell 29,000 to 39,000 sets of pads (6 pads per set) annually. The most important issue CMI management faces is setting the price of each pad, in the words of Robert Minicucci “ The way we price this could have a significant impact on everything else we do with it.” CMI will consider a range or pricing options such as cost based pricing, competitor based
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Provided that CMI chooses to invest $50,000 the costs are as such:
Manufacturing cost = 69.18
Contribution Margin (50% of selling price) = 69.18
Total Price = $138.36
WIthout investment:
Manufacturing Cost = 148.12
Contribution Margin(50% of selling price) = 148.12
Selling Price = $296.24
Using this method CMI can ensure it meets it’s contribution margin requirements, but this method does not consider the savings of efficiency and reduced change time.
Competitor Based pricing
In this method CMI will price their products at a similar price to Asbestos pads. In the Colerick test the total number of sets of Asbestos pads used = 20 and cost per set = $50. The total cost of the job was $1000.00. In the Fazio Construction test the cost per set = $40 and number of sets used = 50. We can use this data to give us a range of how much the cushion pads should cost to be competitive.
Colerick Total Cost for job = 20 * 50 = $1000 Fazio Cost for job= 40*50=$2000
Number of Cushion Pads used= 6 Number of Cushion Pads= 5
Cost per cushion pad = 1000/6= $166.67 Cost per cushion pad=$400
To be competitive CMI must price their product in between this range, a good estimate is $300.00. Provided CMI invests in permanent tooling it will still provide a good profit and be a very competitive price.
Value Based Costing
Value based Costing takes into account all the other
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