CASE FACTS

Prod
Sales Units 25,000
Selling Price per Unit 40
Variable Production Costs per Unit (20)
Variable Non-prod Costs per Unit (2.60)
Transportation (gram/km) 0.8 5,000
Debtors Costs 0.015
Order Processing Costs (inv equivalents) 1.2 300
Sales Commissions 4%

CALCULATIONS
Prod

Does Nothing

Sales Revenue 1,000,000

Variable Production Costs (500,000)
Variable Non-prod Costs (65,000)
Product Contribution Margin 435,000
Segment Related Variable Costs:
Transportation (4,000)
Debtors Costs (15,000)
Order Processing Costs (360)
Sales Commissions (40,000)
Segment Contribution Margin 375,640
Probability of Competitior Reaction 0.2
Expected Value 75,128
 Product P Pr
15,000 10,000 30,000
40 40 50
(20) (20) (28)
(2.60) (2.60) (2.00)
2,000 1,000 3,000
0.015 0.015 0.015
200 100 200
4% 4% 4%

Product P Pr
Introduces Comparable Introduces Superior
Product Product TOTAL Does Nothing

600,000 400,000 2,000,000 1,500,000

(300,000) (200,000) (1,000,000) (840,000)
(39,000) (26,000) (130,000) (60,000)
261,000 174,000 870,000 600,000
-
(1,600) (800) (6,400) (2,400)
(9,000) (6,000) (30,000) (22,500)
(240) (120) (720) (240)
(24,000) (16,000) (80,000) (60,000)
226,160 151,080 752,880 514,860
0.5 0.3 0.2
113,080 45,324 233,532 102,972
 Product Q
10,000 6,000
50 50
(28) (28)
(2.00) (2.00)
2,500 1,500
0.015 0.015
150 100
4% 4%

Product Q
Introduces Comparable Introduces Superior
Product Product TOTAL

500,000 300,000 2,300,000

(280,000) (168,000) (1,288,000)
(20,000) (12,000) (92,000)
200,000 120,000 920,000

(2,000) (1,200) (5,600)

(7,500) (4,500) (34,500)
(180) (120) (540)
(20,000) (12,000) (92,000)
170,320 102,180 787,360
0.5 0.3
85,160 30,654 218,786
 Product P
Does Nothing

Sales Revenue 1,000,000

Variable Production Costs (500,000)
Variable Non-prod Costs (65,000)
Product Contribution Margin 435,000
Segment Related Variable Costs:
Transportation (4,000)
Debtors Costs (15,000)
Order Processing Costs (360)
Sales Commissions (40,000)
Segment Contribution Margin 375,640
Fixed Costs:
Short-Run Controllable FC
District Office (18,000)
Advertising (40,000)
Promotion (Competition) (15,000)
Salespersons Salary & Travel (60,000)
Other Segment FC -
Segment Controllable Margin 242,640
Long-Run, Non-Controllable FC
Depreciation (12,000)
Net Segment Margin 230,640
Fixed Corporate Investment Charge (14,400)
Residual Segment Margin 216,240
 Does Nothing

Product P
Segment Contribution Margin 375,640
Expected Value 75,128

Product Q
Segment Contribution Margin 514,860
Expected Value 102,972

*** Launch Product P as it yields higher contribution margin in the worst possible scenario (competitor introd
*** Assuming that the probabilities of competitor reaction are reliable, launch Product P as it yields higher ex

Does Nothing

Regret Matrix
Product P 139,220
Product Q

*** Assuming that the probabilities of competitor reaction are uncertain, launch Product Q as it yields lower r
 Introduces Comparable Introduces Superior
Product Product TOTAL

226,160 151,080 752,880

113,080 45,324 233,532

170,320 102,180 787,360

85,160 30,654 218,786

possible scenario (competitor introduces superior product).

aunch Product P as it yields higher expected value.

Introduces Comparable Introduces Superior

Product Product TOTAL

139,220
55,840 48,900 104,740

launch Product Q as it yields lower regret total.