Athens Glass

Works
IPMI July 2011
Decision Analysis
Group 2

Sales & Price

Sales Volume

Percentage Sales

Price

Year

Quarter

AGW

Competitors

AGW

Competitors

AGW

Competitors

1991

241

443

35%

65%

2.05

2.05

1991

313

592

35%

65%

2.05

2.05

1992

204

381

35%

65%

2.15

2.15

1992

269

513

34%

66%

2.15

2.15

1992

251

456

36%

64%

2.15

2.15

1992

238

672

26%

74%

2.36

2.15

1993

139

474

23%

77%

2.36

2.15

1993

162

642

20%

80%

2.36

2.15

Production Cost
Production Volume (000 sq. ft.)

150

175

200

225

250

275

300

325

Material

0.45

0.45

0.45

0.45

0.45

0.45

0.45

0.45

Energy

0.38

0.36

0.36

0.35

0.35

0.37

0.37

0.38

Labor

0.32

0.31

0.3

0.31

0.33

0.35

0.36

0.38

Shipping

0.11

0.11

0.11

0.11

0.11

0.11

0.11

0.11

General Overhead

0.08

0.08

0.08

0.08

0.08

0.09

0.09

0.09

Depreciation

0.27

0.23

0.2

0.18

0.16

0.15

0.14

0.13

Manufacturing Cost

1.61

1.54

1.5

1.48

1.48

1.52

1.52

1.54

Selling & Admin Costs

0.72

0.69

0.67

0.66

0.67

0.68

0.68

0.69

Total Cost

2.33

2.23

2.17

2.14

2.15

2.2

2.2

2.23

Costs
Fixed Cost:
- Selling and Admin Cost
- Depreciation*

Variable Cost:
Material
Energy
Labor
Shipping
General Overhead

Sources:
-http://en.wikipedia.org/wiki/Contribution_margin#Examples
-http://www.blurtit.com/q386698.html

-http://wiki.answers.com/Q/Is_depreciation_on_equipment_fixed_or_variable

Influence Diagram

Revenue

Price

Units Sold

Profit

Total Cost

Variable Cost

Fixed Cost

*source: Bodily, page 20-22

Questions
To restore the market share, should AGW maintain
selling price in $ 2.36 or lower the price? while taking
into account the company's profit
Assuming

The forecast of Q4 1993 market = 920,000

square feet and with current price,the sales
wont fall below 150,000

Scenario 1
Back to $ 2.15 price
Condition :
Sales

Market Share

= 35%

Volume

= 920,000

Price per unit

Total Cost per unit
Profit/Loss per unit

= 35% x 920,000
= 322,000

= $ 2.15
= $ 2.23 .
= -$0.08

Total Profit/Loss = Sales x Profit/Loss per Unit

= 322,000 x -$0.08
= -$25,760
LOSS

Scenario 2
Back to $ 2.36 price
Condition :
Sales
= 150,000 (loyal customer)
Volume = 920,000

Price per unit

Total Cost per unit
Profit/Loss per unit

Market Share = 16 %

= $ 2.36
= $ 2.33 .
= $ 0.03

Total Profit/Loss = Sales x Profit/Loss per Unit

= 150,000 x $ 0.03
= $ 4,500
Profit

Scenario 1
Back to $ 2.15 price
Condition :
Market Share

= 35%

Volume

= 920,000

Sales

= 35% x 920,000

= 322,000

Revenue
Price per unit x Sales = $ 2.15 x 322,000

TOTAL REVENUE

= $ 692,300

Cost
Fixed Cost = Selling & Adm. Cost + Depreciation
= $ 0.69 + $ 0.13 = $ 0.82
Variabel Cost = ($ 2.23 - $ 0.82) x 322,000

= $ 454,020

Contribution Margin*

= $ 238,280

* http://en.wikipedia.org/wiki/Contribution_margin#Examples

= 34.4 %
Profit

Scenario 2
Back to $ 2.36 price
Condition :
Sales

= 150,000 (loyal Customer)

Volume = 920,000

Market Share = 16%

Revenue
Price per unit x Sales = $ 2.36 x 150,000

TOTAL REVENUE

= $ 354,000

Cost
Fixed Cost = Selling & Adm. Cost + Depreciation
= $ 0.72 + $ 0.27 = $ 0.99
Variabel Cost = ($ 2.33 - $ 0.99) x 150,000

= $ 201,000

Contribution Margin

= $ 153,000
= 43.2 %
Profit

Decision
Minimum Cost

= $ 2.14

Production Volume = 225,000

Market Share

= 225,000 / 920,000
= 24.45%

Price per Unit

$ 2.36 $ 2.15 = 35 %
$ 2.36 Price? = 24.45 %

Price = $ 2.21

Revenue

= $ 2.21 * 225,000
= $ 497,250

Profit
2.21-2.14 = 0.07 * 225.000 = $ 15.750
Contribution Margin
2.21 - (1.48 - 0.18)
= 0.91 * 225.000 = $ 204.750
= 41.17 %

In conclusion
Lowering the price

$ 2.21

Sales Volume Target

225,000 (24.45% market)

Profit

$ 15.750

Contribution Margin

$ 204,750

Contribution Margin Ratio

41.17 %

Thank
You