It bears emphasizing that all businesses do not work this way. Companies that compete in terms of product leadership do not automatically assume that a competitor’s price is synonymous with the price ceiling. For example, while companies such as Procter and Gamble certainly pay attention to competitor prices, they also try to create brand loyalty that enables charging a price premium.
3. Define the cost driver for each of University Tees’ variable costs. Without calculating any numbers, would you expect the total variable cost expressed on a per t-shirt basis for high volume orders to be higher or lower than the total variable costs expressed on a per t-shirt basis for low volume orders? Explain your answer.
This question enables professors to explore two important concepts with respect to cost behavior. First, a company can have more than one cost driver. Volume of production is frequently cited in textbooks as the predominant cost driver; however, costs can vary with respect to numerous cost drivers. In the case of University Tees, students should be able to identify four cost drivers. The number of shirts included in an order drives the total t-shirt cost ($3.00 per t-shirt), the total shipping cost ($0.60 per t-shirt), and the sales commission ($0.50 per t-shirt). The number of shirts ordered also influences the printing costs, which decrease by $.10 per side, per color, per shirt in increments of 50 shirts to a floor of $0.20 per side, per color, per shirt. The second cost driver, the number of sides to be printed on each shirt, also influences the overall printing cost. The third cost driver, the number of colors to be printed on each side of the shirt, also influences the overall printing cost and drives the cost of screens. The fourth cost driver, the number of art designs, drives the artwork fee. 本文来自优'文,论-文·网原文请找腾讯32-49114
The second key learning objective of this question is to help students see that one specific cost can be influenced by more than one cost driver. In the case of University Tees, the cost of each customer order is influenced by the four cost drivers mentioned in the prior paragraph. The simultaneous impact of these four cost drivers creates a situation where the variable cost of a customer order expressed on a per-t-shirt basis does not remain constant. Instead, the variable cost per t-shirt for high volume orders will be lower than the variable cost per t-shirt for low volume orders.
The left-hand column of numerical data in the table below mirrors the data for the average order given in the case. The right-hand column of numerical data in the table is the same as the average order profile given in the case except the number of t-shirts is increased from 50 to 100. This table shows that t-shirt costs ($3.00), sales commissions ($0.50), and shipping costs ($0.60) are constant on a per t-shirt basis. However, the total artwork design costs for the average order are $40. When this cost is spread across 50 t-shirts, the average cost per t-shirt is $0.80, whereas the same total cost spread across 100 t-shirts is an average cost of $0.40 per t-shirt. Similarly, the total screen cost for the average order is $30, or $0.60 per unit for an order of 50 shirts versus $0.30 per unit for an order of 100 t-shirts. Finally, the printing cost decreased by $0.10 in step-function fashion as the volume of t-shirts ordered increased. Therefore, the printing cost per t-shirt for the average order is $1.00 for a volume of 50 shirts and $0.80 for a volume of 100 shirts. The artwork design, printing, and screen costs explain why the total variable cost of an order, expressed on a per t-shirt basis, declines as the order size increases.
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