Athens Glass Works

Athens Glass Works

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Through the discussion , For the proposed price decision , if we ignore our competitors’ reaction , there are two assumption scenario we have made for this case

1. The decision made will maximum company overall benefits

2. The competitors’ decision will not impact the AGW(Athens Glass Works) overall result like market share , customers relationship, delivery,…etc.

Based on above assumption scenario , from AGW decision making point , we can explore the following information

For such scenario , we can find if AGW make pricing decision at US$ 2.36 and based on the minimum sales volume forecast 150,000 , it will have overall EBIT US$ 4,500. But if we revisit the costing details of AGW , we will find there may be another option for the pricing decision.

Consider the glass industry is saturated market and the overall annual demand is around 3,000 K sq. ft. (920K for 1993 Q4) for this niche segment market only. By historical data reveals that if AGW keep same price level as her competitors , AGW will take around 35% market share , it means if AGW keep same price with others , then AGW may have sales volume around 920K X 35% = 322K sq. ft. Based on this option scenario , if AGW can go back the price at US$ 2.15 , AGW will have the controllable margin at price 2.15 for quantity 320K is around US$ 236,800 as following indication.

If we treat the item of “Depreciation” and “Selling & Admin. Costs” are as fixed cost.

The mentioned controllable margin US$236,800 is larger ones compared the controllable margin is US$ 153,000.at the price level US$2.36 of the sales volume 150K. So by accounting principle , if we treat the depreciation and Selling & Admin Cost as the fixed cost , then we will recommend the price shall be returned back to US$ 2.15 to win back the market as previous level and will have more controllable margin US$ 240,500 vs. the controllable margin US$ 153 of the price at...