The sales manager and controller have to decide on a price for a textile that lost significant market share as a result of a recent price increase. Information on manufacturing costs and on the pricing behavior of Beauregard and its only competitor are available for analysis. The case provides an opportunity to practice contribution analysis, considering fixed and variable costs as reported in a typical cost report. Also tests the students' ability to recognize the need to consider the situation from the competitor's point of view. Finally, it poses a prisoner's dilemma for the two firms where each would prefer a set of prices unfavorable to the other so that prices are likely either to be unstable or to be stable at a sub optimal level for both parties. The class can close with students attempting to devise a pricing strategy that would reach the optimal level.
Quarterly Prices and Sales Volumes for T-30 Fabric, 1988-1990
Beauregard’s Estimated Cost per Yard of Triaxx-30 at Various Volumes of Production
Contribution Margin Calculations
Case 1Beauregard Textile Company drops its price to $3 for 4th Quarter
Case 2Beauregard Textile Company Keeps its price to $4 for 4th Quarter
Case 3Beauregard Textile Company Keeps its price to $4 for 4th Quarter while Calhoun and Pritchard raises its prices to $4
Case 4Beauregard Textile Company Keeps its price to $3 for 4th Quarter while Calhoun and Pritchard raises its prices to $4
What are the financial results for Beauregard Textile Company that Beal and Calloway should be looking at with respect to the present pricing arrangement?
What is the contribution per yard, and what is the total contribution, at the $4 price? How would the numbers look if Beauregard Textile dropped its price to $3.00?( Note that you must determine the relevant costs that should be included in computing the contribution per yard.)
Calhoun and Pritchard presumably is showing a loss at $3.00. Why then is it not raising its price? (Assume similar costs).
What happens to Calhoun and Pritchard if Beauregard Textile drops its price to $3.00?
What price should Beauregard charge? Why?
How might Beauregard Textile persuade Calhoun and Pritchard to rise its price WITHOUT violating the antitrust laws which prohibit collusion on pricing between competitors?