Main issue: European Sales Division of Computron had to decide what price to submit for its Computron 1000X digital computer for the bid of a purchase contract from Konig & Cie., AG. * Four other computer manufacturers, including RMAG, EDAG and Digitex, would bid for the contract. The competitors’ prices will most likely be around the $872,000 proposed by RMAG. * Computron used cost based pricing (firm’s standard pricing policy): The European Price= U.S. cost + 33.33% x Cost (Markup) + Transportation and installation cost + Import duty. * For Computron to win the contract, the threshold of highest bidding price= $1,046,400 (Lowest bid * (1+20%)) and the that of lowest bidding price= Manufacturing cost + Transportation and installation costs * Range of acceptable market price for medium size computers: Upper limit= $ 2,400,000, Lower Limit= $320,000 Proposed Price Bid Alternatives:
Option1: Import components from U.S. and assemble in Frankfurt plant. Bid at $1,244,800. + Reduce German import duty from 17.5% to 15% while maintaining the contribution margin and profit. + Maintain superior quality image, Computron’s major competitive advantage, and brand positioning. - Very low possibility to win the bid due to the noncompetitive price compared to that of competitor. - Will still incur extra cost from the 15% import duty compared to the other German-based bidders. Option 2: Manufacture and assemble in Frankfurt plant. Maintain markup at 33.33%. Bid at $1,091,200. + Eliminates the 17.5% German import duty while maintaining the original contribution margin and profit. + Reduce future transportation cost as a result of the economy of scale when paired with higher sales volume. - Low possibility to win the bid due to pricing at more than 20% greater than the lowest offer. - Newly hired employees might lower the quality of product and increase flaw rates due to unfamiliarity with firm operations, thereby damaging company’s reputation of precision...
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