Athens Glass WorksIPMI July 2011

Decision Analysis

Group 2

Sales & Price

 Year

 Quarter

Sales Volume Percentage Sales Price

AGW Competitors AGW Competitors AGW Competitors

1991 1 241 443 35% 65% 2.05 2.05

1991 2 313 592 35% 65% 2.05 2.05

               

1992 1 204 381 35% 65% 2.15 2.15

1992 2 269 513 34% 66% 2.15 2.15

1992 3 251 456 36% 64% 2.15 2.15

1992 4 238 672 26% 74% 2.36 2.15

               

1993 1 139 474 23% 77% 2.36 2.15

1993 2 162 642 20% 80% 2.36 2.15

Production Cost

  Production Volume (000 sq. ft.)

  150 175 200 225 250 275 300 325

Material 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.45

Energy 0.38 0.36 0.36 0.35 0.35 0.37 0.37 0.38

Labor 0.32 0.31 0.3 0.31 0.33 0.35 0.36 0.38

Shipping 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

General Overhead 0.08 0.08 0.08 0.08 0.08 0.09 0.09 0.09

Depreciation 0.27 0.23 0.2 0.18 0.16 0.15 0.14 0.13

Manufacturing Cost 1.61 1.54 1.5 1.48 1.48 1.52 1.52 1.54

Selling & Admin Costs 0.72 0.69 0.67 0.66 0.67 0.68 0.68 0.69

Total Cost 2.33 2.23 2.17 2.14 2.15 2.2 2.2 2.23

Costs

• Fixed Cost:- Selling and Admin Cost- Depreciation*

• Variable Cost:- Material- Energy- Labor- Shipping- General Overhead

Sources:

-http://en.wikipedia.org/wiki/Contribution_margin#Examples

-http://www.blurtit.com/q386698.html

-http://wiki.answers.com/Q/Is_depreciation_on_equipment_fixed_or_variable

Influence Diagram

Price Profit

Revenue

Total CostUnits Sold

Variable Cost

Fixed Cost

*source: Bodily, page 20-22

Questions

To restore the market share, should AGW maintain selling price in $ 2.36 or lower the price? while taking into account the company's profit

Assuming

The forecast of Q4 1993 market = 920,000 square feet and with current price,the sales won’t fall below 150,000

Scenario 1• Back to $ 2.15 price

Condition :

Market Share = 35%

Volume = 920,000

Sales = 35% x 920,000

= 322,000

Price per unit = $ 2.15Total Cost per unit = $ 2.23 . Profit/Loss per unit = -$0.08

Total Profit/Loss = Sales x Profit/Loss per Unit= 322,000 x -$0.08= -$25,760 LOSS

Scenario 2• Back to $ 2.36 price

Condition :Sales = 150,000 (loyal customer) Volume = 920,000

Market Share = 16 %

Price per unit = $ 2.36Total Cost per unit = $ 2.33 . Profit/Loss per unit = $ 0.03

Total Profit/Loss = Sales x Profit/Loss per Unit= 150,000 x $ 0.03= $ 4,500 Profit

Scenario 1• Back to $ 2.15 price

Condition :

Market Share = 35%

Volume = 920,000

Sales = 35% x 920,000

= 322,000

RevenuePrice per unit x Sales = $ 2.15 x 322,000

TOTAL REVENUE = $ 692,300

CostFixed Cost = Selling & Adm. Cost + Depreciation

= $ 0.69 + $ 0.13 = $ 0.82

Variabel Cost = ($ 2.23 - $ 0.82) x 322,000 = $ 454,020

Contribution Margin* = $ 238,280

= 34.4 %Profit* http://en.wikipedia.org/wiki/Contribution_margin#Examples

Scenario 2• Back to $ 2.36 price

RevenuePrice per unit x Sales = $ 2.36 x 150,000

TOTAL REVENUE = $ 354,000

CostFixed Cost = Selling & Adm. Cost + Depreciation

= $ 0.72 + $ 0.27 = $ 0.99

Variabel Cost = ($ 2.33 - $ 0.99) x 150,000 = $ 201,000

Contribution Margin = $ 153,000

= 43.2 %Profit

Condition :

Sales = 150,000 (loyal Customer)

Volume = 920,000Market Share = 16%

DecisionMinimum Cost = $ 2.14

Production Volume = 225,000 Market Share = 225,000 / 920,000

= 24.45%

Price per Unit

$ 2.36 $ 2.15 = 35 %$ 2.36 Price? = 24.45 %Price = $ 2.21

Profit2.21-2.14 = 0.07 * 225.000 = $ 15.750

Contribution Margin2.21 - (1.48 - 0.18) = 0.91 * 225.000 = $ 204.750

= 41.17 %

Revenue = $ 2.21 * 225,000

= $ 497,250

In conclusion

Lowering the price $ 2.21

Sales Volume Target 225,000 (24.45% market)

Profit $ 15.750

Contribution Margin $ 204,750

Contribution Margin Ratio 41.17 %

ThankYou