Forner Manacc Paper

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Case Study:
FORNER CARPET COMPANY

Submitted To:

Ms. Ma. Lourdes Salazar

Submitted By:

ANGELES, Jocris
CRUZ, Kriska
SUEGAY, Gwyneth

July 13, 2011

I. Introduction

Forner Carpet Company, the market leader in high-grade carpet materials, plans to expand/diversify its production, and replace its equipment, hence, a need for fresh capital. In order to support this endeavour, Forner imposed a price increase on its L-42 product to boost income. However, market response has been unsatisfactory, with the competitors acquiring some of Forner’s share.

II. Statement of the Problem

What pricing strategy should Forner Carpet Company utilize in order to maintain the profitability of the L-42 line?

III. Areas of Considerations

The objectives of this case would be: 1. To identify the relevant and irrelevant costs and benefits in a decision; 2. To determine which pricing strategy yields to higher profits; 3. To consider other qualitative factors with regard to pricing strategy, this must be consistent with the expansion plans of the company.

Below are the given data, as stated in the problem:

III. Areas of Considerations

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Direct Overhead - Material Handlers, Suppliers, Repairs, Power, Fringe Benefits

Indirect Overhead - Supervision, Equipment Depreciation, Heat, and Light

General Overhead - 30% of Direct Labor

Selling and Administrative- 45% of Factory Cost

Assumptions:

1. A total of 630,000 square yards of carpet were sold during the first half of 1994 2. 150,000 yards of carpet sold if price $3.95; while 75,000 if price is $4.75 3. The market share of Forner Carpet is not affected by the pricing behavior of the other market players. 4. The study focuses on Forner's L-42 product line and assumes it’s independence from the company’s other products.

III. Analysis
1. What was the relationship (if any) between the L-42 pricing decision and the company's

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