Superior Manufacturing Company faced a huge risk from declining prices for its most successful product. The prices would most likely cause that product to become unprofitable. The two other products sold by Superior were already unprofitable, even at their current prices. The manufacturing strategy and cost system used by Superior does not clearly differentiate indirect costs associated with each factory. Indirect costs make up a significant portion of the costs attributed to each product. Superior Manufacturing Company and it's competitors must generally follow the lead of Samra Company with regards to product pricing Samra's strong financial position makes them dominant in the market
Superior Manufacturing faced several difficult decisions in 2005. The previous year had been an unprofitable one and there was concern that 2006 would be even more so. Superior has many competitors, with products similar enough that there are alternatives readily available if Superior attempts to raise prices.
At the time of the case, Superior used three dedicated factories to produce their products. Each factory produced only one product, and it was noted that the factories typically did not operate at capacity.
The cost system used by Superior was less than ideal for the decisions they faced. It employed a standard value which was calculated based on past performance, but it seemed to contradict the actual sales and expense data.
In 2005, Superior had to decide whether to continue production on all three of their product lines or discontinue the least profitable one, product 103. They also had to decide whether to lower the price of their product 101 to match Sampra's price.
1)Warner's decision to continue manufacturing of product 103 was reasonable and appropriate. It's unclear how much of those indirect costs would be recovered if product 103 were to be...