In July 2000, one of the Berkshire Threaded Fasteners Company ‘s rivals Bosworth announced a monetary value decrease on the 100 series from $ 2.45 to $ 2.25 per 100 pieces. As the net income and loss by Merchandise from January 1 to June 30, 2000, the decrease of the unit gross revenues monetary value of Series100 from $ 2.45 to $ 2.25 would intend that the unit gross revenues monetary value would be below the entire unit cost of $ 2.29.This should intend significant losingss to the bottom line. However, Cook forecast that if they hold the monetary value at $ 2.45 monetary value during the last six months of 2000, unit gross revenues would be 750,000 100-piece tonss, the gross would be $ 1,838,000 ( $ 2.45* 750,000= $ 1,837,500 ) . Cook felt that if the monetary value were dropped to $ 2.25 per 100 monetary values, the six months ‘ volume would be 1,000,000, the gross would be $ 2,250,000 ( $ $ 2.25* 1,000,000= $ 2,250,000 ) . Based on this, in last six months of 2000 they would sell more of their 100 series than any of the other series. In add-on, from Appendix 2 we can see if the monetary value of the 100 series reduced from $ 2.45 to $ 2.25 in 2000, the merchandising monetary value will be reduced from $ 2.42 to $ 2.22, so the incremental net income should be 90,000. Appendix 2 shows that decrease in unit gross revenues monetary value to $ 2.22 will so make break-even production measure of near one million units as projected. This decrease would non increase runing income, the overall sum for the twelvemonth would at $ 90,000. In my sentiment, they can cut down the monetary value of the 100 series from $ 2.45 to $ 2.25. Above all Bosworth has already have the monetary value cut on this series and to be competitory in the market, Berkshire ‘s portion of industry gross revenues was 12 % for the 100 series, it is the most merchandise in all series, so Berkshire should cut down the monetary value of 100 series otherwise it will lose the market portion in the concern. Lowering their monetary value to run into the rival would be a good thought. Therefore, the low monetary value is barely a feasible option for company in the hereafter. ( http: //www.slideshare.net/MelyndaDaugherty/berkshire-threaded-fasteners. Cited 22 Dec 2012 ) .
During 1999, Berkshire ‘s portion of industry gross revenues was 12 % for the 100 series, 8 % for the 200 series and 10 % for the 300 series. 100 series has the biggest proportion in the all merchandises. In the instance Exhibit 2- Analysis of net income and loss by merchandise for twelvemonth ended December 31, 1999. The net income of 100 series was $ 295,000, but both of the 200 series and 300 series at the loss province. Besides in the Exhibit 4- net income and loss by merchandise from January 1 to June 30, 2000, 100 series ‘ gross revenues position is the best. Beyond that, in the Appendix 3 the Contribution Margin Ratio for 3 merchandise lines in 1999, we can see the Contribution Margin Ratio for this 3 series were 48.36 % , 45.63 % , 42.59 % . Contribution Margin Ratio referred to as gross net income conversationally. It reflects the ability of merchandises make the part to the endeavor. 100 series costs them approximately 1.68 to bring forth 100 units and they sell 100 units for 2.45. This is a 0.73 per 100 unit part border. Even if you include the fixed costs, this becomes the lone profitable line. Therefore, the 100 series is the Berkshire ‘s most profitable merchandise line.
In order to long-run development, I have some advices for Mr. Magers. First of all, is perchance puting. In the yesteryear, Bosworth announced monetary values yearly and the other manufacturers followed suit. Finally Bosworth, with its strong fiscal place, once more stabilized the state of affairs following a general acknowledgment of the failure of monetary value film editing. A strong company which has the strong fiscal place can populate in the monetary value war, but the little companies possibly die. Berkshire sells a trade good merchandise in an industry where several of its rivals are much larger. Bosworth, the dominant company, has announced a monetary value decrease on merchandise line 100. Berkshire has no alternate but to run into Bosworth ‘s monetary value. The pick is to fit the new monetary value or go out the concern. Berkshire is non the “ market leader ” , they merely can follow the monetary value. If they attract the investing, do them stronger, they can hold more power in the market. Second, Berkshire accepts the thought that their merchandises are trade goods, no efforts at distinction. They can make a new merchandise line, merely they support these. Third, cost decrease. All the merchandises of the different makers in the industry are really similar. Proving their concern scheme is in fact cost leading. Another piece of grounds that besides supports this scheme is the fact that the major focal point of their accounting system seems to be on cost decrease. ( http: //www.writework.com/essay/berkshire-threaded-fasteners-case. Cited 23 Dec 2012 ) .
In decision, Berkshire Threaded Fasteners Company has a batch of schemes need betterment. They can non drop the 300 series ; in last six months of 2000 they can cut down the monetary value of the 100 series to follow the Bosworth, but they should alter this state of affairs ; In add-on, 100 series is the most profitable merchandise line, they must put emphasis on 100 series.
Appendix1 – The consequence on the net income for the first six months of 2000 if the company had dropped the 300 series at January 1, 2000.
Entire incremental loss= $ 1.15* 501,276units = $ 576,467.4
Appendix2 – If the monetary value of the 100 series reduced from $ 2.45 to $ 2.25 in 2000, the merchandising monetary value will be reduced from $ 2.42 to $ 2.22.
Incremental Revenue = $ 2.22*1,000,000- $ 2.42*750,000 = 405,000
Incremental Cost = ( $ 0.61+ $ 0.63+ $ 0.01+ $ 0.01 ) * ( 1,000,000-750,000 ) = 315,000
Appendix3- Contribution Margin Ratio for 3 merchandise lines in 1999.
100 series per 100 personal computers. UVC = 0.61+0.63+0.01+0.01 = 1.26
200 series per 100 personal computers. UVC = 0.59+0.75+0.02+0.01 = 1.37
300 series per 100 personal computers. UVC = 0.70+0.81+0.03+0.01 = 1.55