Beauregard Textile Company

Topics: Cost, Costs, Marginal cost Pages: 4 (444 words) Published: February 17, 2011
Beauregard Textile Company
Eugenio J. Miravete

Relevant Market Infomation
• Duopoly in the market of Triaxx-30:
– Beauregard Textile Company (BTC). – Calhoun & Pritchard Inc. (CPI).

• Pricing is final for each quarter (commitment) and normally BTC announce her price first. • BTC recently raised the price of T-30 from $3 to $4 to align this markup to other fabrics in her product line. • CPI held his price at $3. • CPI and BTC have similar costs. • CPI is in a tight financial situation. • Products are similar but not identical. – BTC may have a location advantage.

MSB: Managerial Economics 2

Market Description

• •

Market remained quite stable around 225,000 yards. There is evidence that consumers switch suppliers to favor lower price. MSB: Managerial Economics 3

Cost Analysis

What are the relevant cost items to consider in pricing T-30? MSB: Managerial Economics 4

Cost Analysis
• Variable costs:
– – – – Direct Labor. Material. Material Spoilage. Direct Department Expense.

Exclude expenses not related to the scale of production of T-30, or that have been allocated following arbitrary accounting rules to cover costs that are common to the production of other items: – General Overhead

• Plant accounting, insurance, security, plant manager’s salary.

– Selling and Administration.
• Finnacial accounting, personnel, officer’s compensation, as well as wages of sales people.

– Indirect Department Expense.
• Depreciation, supervision.

MSB: Managerial Economics


Demand Analysis

This is the present pricing arrangement where BTC charges $4.00 and CPI charges $3.00 per yard of T-30, respectively.

MSB: Managerial Economics


Demand Analysis

What would happen if BTC drops her price to $3.00 to match CPI? – Is pricing at $3.00 sustainable in the long run when total cost per yard amount to $3.31?

MSB: Managerial Economics


Demand Analysis

Can BTC price at $4.00 to signal...
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