Case Brunswick Plastics
Brunswick Plastics
This case deals with cost analysis for pricing new business in a small injection moldingjob shop in "the Maritimes" in 1986, a good business year.
In Septe mber of 1986 Michael Smith, Division Manager of Brunswick Pla stics, faced an important pricing decision on a majo r new b id opportunity . Michael knew that pric ing too high m eant losing a bid that wo ul d em ploy currently unused capacity. On th e other hand, pricing too low meant l osses on the j ob. In the first two months after Michael arri ved in Novemb er of 1984, the presses were running only about 40% of available machine hours. The division had recently lost two large contracts and was struggling to find a solid market position. Michael had instituted a policy of
"contribution margin pricing" to restore profitability. He reasoned that the fixed costs w e re already in place and there was heavy excess capaci ty . Any orders t hat genera ted positive contribution would enhance bottom line profits. In two ye ars , machine running time was up to almost 50% of available machine hours and the number of different pro duc ts manufactured was up
from 30 to 50.
THE COMPANY
In addition to the 50 di fferent products BP was selling, it was also typically exp eri mentin g in the facto ry with a few others at any given time. New product introductions seemed to Michael to be a ke y step in filling up the factory . Smith's b est estimate of sales for 1986 wa s $1,200,000 and he thought BP would again be just above the break even level on pro fits . An es tima ted income statement for 1986 is shown in Exhibit I. The division had 20 full-time e mplo yee s. Since the
1
1m demnnd.
F;:ctory
factory was not unionized, factory employ111r>r;t
'
'" empl oyment had ranged between l to q ual ity control, and by aggrc.:s:;iv1;;;J ;;.d .,�i1it,. ,.
1 . c:iu� ··\Su reliable supplier of high qua lity pr oducts. In several markets , BP products were s peci fied by major customers and had become the industry
This case deals with cost analysis for pricing new business in a small injection moldingjob shop in "the Maritimes" in 1986, a good business year.
In Septe mber of 1986 Michael Smith, Division Manager of Brunswick Pla stics, faced an important pricing decision on a majo r new b id opportunity . Michael knew that pric ing too high m eant losing a bid that wo ul d em ploy currently unused capacity. On th e other hand, pricing too low meant l osses on the j ob. In the first two months after Michael arri ved in Novemb er of 1984, the presses were running only about 40% of available machine hours. The division had recently lost two large contracts and was struggling to find a solid market position. Michael had instituted a policy of
"contribution margin pricing" to restore profitability. He reasoned that the fixed costs w e re already in place and there was heavy excess capaci ty . Any orders t hat genera ted positive contribution would enhance bottom line profits. In two ye ars , machine running time was up to almost 50% of available machine hours and the number of different pro duc ts manufactured was up
from 30 to 50.
THE COMPANY
In addition to the 50 di fferent products BP was selling, it was also typically exp eri mentin g in the facto ry with a few others at any given time. New product introductions seemed to Michael to be a ke y step in filling up the factory . Smith's b est estimate of sales for 1986 wa s $1,200,000 and he thought BP would again be just above the break even level on pro fits . An es tima ted income statement for 1986 is shown in Exhibit I. The division had 20 full-time e mplo yee s. Since the
1
1m demnnd.
F;:ctory
factory was not unionized, factory employ111r>r;t
'
'" empl oyment had ranged between l to q ual ity control, and by aggrc.:s:;iv1;;;J ;;.d .,�i1it,. ,.
1 . c:iu� ··\Su reliable supplier of high qua lity pr oducts. In several markets , BP products were s peci fied by major customers and had become the industry