4. What is the total variable cost expressed on a per t-shirt basis for each of the four order scenarios in the case?
Order 1 Order 2 Order 3 Average
order
Number of t-shirts 30 60 300 50
Front of the shirt
Number of art designs 1 1 1 1
(continued on next page)
Table – continued
Order 1 Order 2 Order 3 Average
order
Number of colors 1 2 2 1
Back of the shirt
Number of art designs 1 0 1 1
Number of colors 2 0 2 1
T-shirts ($3 per shirt) $90.00 $180.00 $900.00 $150.00
Sales commission ($0.50 per shirt) $15.00 $30.00 $150.00 $25.00
Shipping ($0.60 per shirt) $18.00 $36.00 $180.00 $30.00
Artwork design ($20 per design) $40.00 $20.00 $40.00 $40.00
Printing ($0.50, $0.40, $0.30, or $45.00 $48.00 $240.00 $50.00
$0.20 per side, per color,per shirt, depending on the size of the order)
Screens ($15 per screen) $45.00 $30.00 $60.00 $30.00
Total variable costs (a) $253.00 $344.00 $1,570.00 $325.00
Number of t-shirts (b) 30 60 300 50
Variable costs per t-shirt (a) . (b) $8.43 $5.73 $5.23 $6.50
CCA price 本文来自优'文,论-文·网原文请找腾讯324,9114 $10
Average internet price $11
5. What bid price per t-shirt would you establish for each of the four order scenarios in the case (round your answer to the nearest dollar)? Would your answer differ depending on whether each order was placed by a repeat customer or a new customer?
Students may derive various answers to these questions. However, the lowest acceptable price for order 1 is $9 per shirt because the variable cost per t-shirt derived in question 4 is $8.43. Since bid prices need to be rounded to the nearest dollar, $9 is the lowest price that will yield a positive contribution margin. Similarly, the lowest acceptable price for orders 2 and 3 is $6 per shirt because the variable costs per t-shirt for these orders are $5.73 and $5.23, respectively. The lowest acceptable price for the average order profile is $7 per shirt given that the variable cost per t-shirt is $6.50. For the average order profile depicted in the case, the price ceiling is $10 per t-shirt because that is the price charged by CCA for an order of 50 t-shirts with a one-color design on the front and another one-color design on the back.
University Tees hopes that its operational efficiency and customized service create customer loyalty. Highly satisfied repeat customers are likely to absorb a modest price increase assuming the higher price is still equal to or less than that of the competition.
6. Are University Tees’ fixed costs relevant to its pricing decisions? Why or why not?
Another way to phrase this question is to ask students if incremental costs or fully-allocated costs should be used to define a company’s price floor. This question provides a wonderful opportunity to discuss the competing points of view on the value of cost-plus pricing, which is commonly used in practice. Full cost-plus pricing advocates argue that: (1) most small companies do not know their customers’ willingness to pay, (2) all costs, fixed and variable, need to be covered to earn a profit, (3) all customers need to pay their fair share of fixed costs—otherwise, how does a company decide which customers receive prices that are below full cost and which customers pay full price?, and (4) allowing marketing employees to use marginal cost-plus pricing would create many unprofitable sales.
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