Beauregard Textile Company

Group 7

Akash Mishra- 1914046

Akshat Kamath- 1914033
Puneet Agarwal-1914002
Rahul Singh Bist-1914014
Ravi Shankar-1014062
Textile Market
• Only two major players – BTC and C&P
• Total market for T-30 fabric has remained stable over last 3 years at
about 225,000 yards per quarter
• Due to recent increase in costs, BTC increased price to $4 but C&P
didn’t follow suit
• BTC management believes that demand for T-30 fabric will fall by 20%
if it is no longer available at $3
Quarterly Prices and Sales Volumes for T-30 Fabric
Beauregard Calhoun & Pritchard

Year Quarter Price ($) Actual Sales Volume (Yards) Price ($) Actual Sales Volume (Yards)
1988 1st 3 1,24,870 3 1,00,000
2nd 3 1,26,016 3 1,00,000
3rd 3 1,25,426 3 1,00,000
4th 3 1,98,863 4 25,000
1989 1st 3 1,27,201 3 1,00,000
2nd 3 1,25,277 3 1,00,000
3rd 3 1,26,124 3 1,00,000
4th 3 1,25,302 3 1,00,000
1990 1st 4 74,860 3 1,50,000
2nd 4 77,216 3 1,50,000
3rd 4 75,000 (est) 3 1,50,000
4th
Cost Structure of BTC and C&P (Cost per Yard)
Production Volume in Yards of Material
25,000 50,000 75,000 1,00,000 1,25,000 1,50,000 1,75,000 2,00,000
Direct Labour $0.860 $0.830 $0.800 $0.780 $0.760 $0.740 $0.760 $0.800
Material 0.400 0.400 0.400 0.400 0.400 0.400 0.400 0.400
Material Spoilage 0.042 0.04 0.04 0.04 0.038 0.038 0.038 0.04
Department Expense:
Direct 0.198 0.14 0.12 0.112 0.1 0.1 0.1 0.1
Indirect 2.4 1.2 0.8 0.6 0.48 0.4 0.343 0.3
General Overhead $0.258 $0.249 $0.240 $0.234 $0.228 $0.222 $0.228 $0.240
Factory Cost $4.158 $2.859 $2.400 $2.166 $2.006 $1.900 $1.869 $1.880
SG&A $2.703 $1.858 $1.560 $1.408 $1.304 $1.235 $1.215 $1.222
Total Cost $6.861 $4.717 $3.960 $3.574 $3.310 $3.135 $3.084 $3.102
Objective
1. What costs are relevant for pricing ?

2. Should BTC drop its price to $3 ?

3. Understand why C&P didn’t increase its price ?

Relevant Costs
• Incremental Costs
• All variable costs, labour, material packaging
• Incremental Fixed Costs
• Semi-Fixed Costs – Fixed over a range of sales but vary outside range
• Equipment capacity
• Sales person capacity
• Avoidable Costs (not sunk costs)
• Costs not yet incurred
• Cost of selling a product
• Rents not covered by long term lease
• Future not historical
 Ans-1. Relevant Costs

Production Volume in Yards of Material

25,000 50,000 75,000 1,00,000 1,25,000 1,50,000 1,75,000 2,00,000
Direct Labour $0.860 $0.830 $0.800 $0.780 $0.760 $0.740 $0.760 $0.800
Material $0.400 $0.400 $0.400 $0.400 $0.400 $0.400 $0.400 $0.400
Material Spoilage $0.042 $0.040 $0.040 $0.040 $0.038 $0.038 $0.038 $0.040
Department Expense:
Direct $0.198 $0.140 $0.120 $0.112 $0.100 $0.100 $0.100 $0.100
Indirect $2.400 $1.200 $0.800 $0.600 $0.480 $0.400 $0.343 $0.300
General Overhead $0.258 $0.249 $0.240 $0.234 $0.228 $0.222 $0.228 $0.240 Common
Factory Cost $4.158 $2.859 $2.400 $2.166 $2.006 $1.900 $1.869 $1.880 with other
SG&A $2.703 $1.858 $1.560 $1.408 $1.304 $1.235 $1.215 $1.222 items
Total Cost $6.861 $4.717 $3.960 $3.574 $3.310 $3.135 $3.084 $3.102

Total Incremental Cost $1.500 $1.410 $1.360 $1.332 $1.298 $1.278 $1.298 $1.340
 Ans-2 Should BTC drop price to $ 3 &
Ans-3 Understand why C&P didn’t increase its price
Scenario 1 Scenario 2 Scenario 3
BTC C&P BTC C&P BTC C&P
Price 4 3 Price 3 3 Price 4 4
Sales Volume 75000 150000 Sales Volume 125000 100000 Sales Volume 100000 80000
Direct Labour $0.800 $0.740 Direct Labour $0.760 $0.780 Direct Labour $0.780 $0.800
Material 0.400 0.400 Material 0.400 0.400 Material 0.400 0.400
Material Spoilage 0.04 0.038 Material Spoilage 0.038 0.04 Material Spoilage 0.04 0.04
Department Expense: Direct 0.12 0.1 Department Expense: Direct 0.1 0.112 Department Expense: Direct 0.112 0.12
Total Relevant Cost $1.360 $1.278 Total Relevant Cost $1.298 $1.332 Total Relevant Cost $1.332 $1.360
Contribution / unit $2.640 $1.722 Contribution / unit $1.702 $1.668 Contribution / unit $2.668 $2.640
Total Contribution $1,98,000 $2,58,300 Total Contribution $2,12,750 $1,66,800 Total Contribution $2,66,800 $2,11,200

• C&P maximizes its profit when it keeps price at $ 3 so C&P will not increase price
• So, BTC should drop its price to $ 3 to increase its profits