My Notes

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These are my observations on the Lille Tissage Exercise that I had given in the last BBMK class.

Facts :

Lille Tissage is the largest company in its segment. (FF 96 Mn T.O) and it wants to expand for which capital is needed. The company’s sales force is on Straight salary – they sell all lines.

• Makes Item 345 – Price Leader – Small Competitors – Wait for LT to announce price – Losing market share from 1995 on Item 345

1. It is a fact that item 345 has lost market share and as the product manager I would be concerned about it. By retaining FF20 price I can gain market share only if competition increases their price to FF20. At the outset this seems unlikely because competition has
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Only 2 alternatives)

6. There is rich cost data given in the case. This must be used to understand how much profits / market share LT can achieve at various production levels ( we must assume that they product what they sell)

7. Though numbers given in the cost data can not be contested, I would definitely contest the way total cost has been computed. The item 345 department operates within a large manufacturing facility that churns out number of other products too. Hence judging the profitability of item 345 on the basis of total cost is not practical.

8. I would like to remove allocated costs and fixed overheads and see what would be the variable cost. If this is done, you can see that the variable cost hovers around 7 FF. ( Not many of you have done this)

9. As the product manager, I would argue that my primary task is to ensure a healthy contribution (Selling Price – Variable Cost). This is logical because my salesmen sell other products too and the selling overhead is an allocated cost. Moreover, the general plant overheads are also allocated costs.

10. My total variable costs look something like this. The one highlighted in green color.

| | | | | | | | | | | | | |75000 | |100000 | |125000 | |150000 | |175000 | |200000 | | | | | | | | | | | | | | |Direct Labor |4.00 | |3.90 | |3.80 | |3.70 | |3.80 | |4.00 | |Material |2.00
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