377.e璧山福禄山泉饮用水业成本控制探究 外文原文

'UniversityTees:IntroducingfundamentalsofmanagementaccountinginasmallbusinessPeterC.Brewera,*,MichaelA.Garamonib,JosephHaddadcaDepartmentofAccountancy,MiamiUniversity,Oxford,OH45056,UnitedStatesbMiamiUniversity,Oxford,OH45056,UnitedStatescUniversityTees,Inc.,26865CenterRidgeRoad,Westlake,OH44145,UnitedStatesarticleinfoAbstractKeywords:Thiscaseintroducessophomore-levelmanagerialManagerialaccountingaccountingstudentstopricingdecisions.ThecaseCostdriversalsooffersanopportunitytodiscusstheconceptsRelevantcostsofbusinessstrategy,businessrisk,andcostdriversBreakevenanalysisStudentsdrawonconceptssuchasrelevantcosting,Contributionmarginbreak-evenanalysis,andcontributionformatincomePricingdecisionsstatementstorecommendpricequotesforasmallbusiness.12008ElsevierLtd.Allrightsreserved.1.IntroductionJoeHaddadandNickDadasfoundedUniversityTees(www.universitytees.com)in2007tosellcustomizedt-shirts,embroideredapparel,andotherpromotionalitems.WhileJoeandNicksensedthattherewouldbeanichefortheirbusinessinthecollegetownofOxford,Ohio(hometoMiamiUniversity),theyunderstoodthatsuccesswouldnotcomeeasygiventhedauntingrealityofsmallbusinessfailurerates.Thesuccessoftheirventurehingedinlargepartonbeingabletocalculateintelligentbidpricesfornewbusinessopportunities.Ifbidpricesweretoolow,thenthecompanywouldsecuremanycustomerorders,butitwouldnotgenerateanyprofit.Ifbidpricesweretoohigh,thenthecompanywouldnotsecureenoughcustomerorders,letaloneearnsufficientprofits.ThequestionJoeandNickwrestledwithwasobvious:‘‘Howdowedevelopapricingstrategythatwillenableustogrowourcustomerbaseandourprofitsatthesametime?”Asastartingpoint,JoeandNickdecidedtofocustheirattentiononpricingtheircompany’smostimportantproductline,t-shirts.2.CustomeranalysisUniversityTeesservescollegestudentsandtheorganizationsandactivitiesthattheyparticipatein,suchasintramuralsportsteams,sororitiesandfraternities,theatreandbandgroups,andprofessionalsocieties.Thesestudentgroupshavealargeamountofbargainingpowerwitht-shirtsuppliersfortworeasons.First,thequalityofscreen-printedt-shirtsislargelythesameregardlessofwhosuppliesthem.Second,numerouspricequotescanbeeasilyobtainedthroughphonecallsorinternet-basedinquiriesandthenreadilycomparedtooneanother.Whileswitchingcoststendtobeminimal,studentgroupsoftenremainloyaltoasupplierwhomakesafavorable impressionwhilehandlingtheirfirstorder,primarilybecausesettingupaccountsandpaymentplansthroughuniversity-heldfundscanbecomplicatedandtime-consuming.UniversityTees’customerstypicallyusefourfactorsinchoosingat-shirtsupplier.First,collegestudentsandstudentorganizationsoftenhavealimitedamountofmoney,socostisacriticalfactor.Second,collegestudentstendtobeshortontime,andtheyfulfilltheirextra-curricularcommitmentsintheeveninghoursandonweekends.Thisrequiresthatsuppliersprovidehassle-freeserviceandconvenientbusinesshours.Third,students’busyschedulessuggestthattheyneedsuppliersthatcandeliverproductsonshortnotice.Fourth,customersprefert-shirtswithvisuallyappealingartworkthatiscustomizedtotheircreativevision.Whilestudentsoftenhaveinterestingideasabouthowtodesigntheirt-shirts,theydonothavetheartisticskillstotranslatethoseideasintoadrawingthatcanbeusedforsilkscreeningpurposes.3.CompetitoranalysisUniversityTeesfacestwotypesofcompetitors.First,numerousinternetcompaniessellcustomizedt-shirtsandshipthemdirectlytothecustomer’sdoor.ThesecompaniesaregeographicallydispersedacrosstheUnitedStatesandusuallyhavestandardbusinesshours(viatelephoneaccess)specifictothetimezonewheretheyarelocated.Internetsuppliersrelyprimarilyonclip-arttocreatet-shirtdesigns,ortheyrequirecustomerstosubmitartwork.Thestandarddeliverytimeforaninternetcompanyis10–14daysfromthedatewhentheartworkiscompletedandthecustomerplacestheorder.UniversityTees’secondkeycompetitorisCollegeCustomApparel(CCA),abricks-and-mortarbusinessinthecityofOxford.CCAmaintainsnormalweekdaybusinesshoursatitsproductionfacilityandretailsalesofficelocatedaboutonehalfmilefromtheMiamiUniversitycampus.CCAworkswithcustomerstocreatecustomizedartwork.Thecompanypurchasestheappropriatequantityoft-shirtsfromitssuppliersandthenusesitsownproductionfacilitytocreateandaddthedesiredscreen-printedpatternstothet-shirts.CCAnotifiescustomersbytelephonewhentheirorderiscomplete,andthecustomersreturntothestoretopickuptheirfinishedgoods.ThetablebelowsummarizesthepriceschargedbyUniversityTees’competitorsforvariousquantitiesoft-shirtswithaone-colordesignonthefrontandanotherone-colordesignonthebacktobedeliveredinthestandardtimeframeof10–14days:QuantityCCAAverageinternetcompetitor25shirts$12pershirt$13pershirt50shirts$10pershirt$11pershirt100shirts　　　　　　　　　　$8pershirt$10pershirt200shirts　　　　　　　　　　$7pershirt$9pershirt4.UniversityTees’strategyandcoststructureUniversityTees’strategyistodifferentiateitselffromcompetitorsinfourways.First,UniversityTeesreducesitsfixedoverheadcostsbyoutsourcingt-shirtproduction.Giventhatt-shirtqualityislargelythesameregardlessofwhoproducesthegarment,UniversityTees decidednottospendmoneycreatingmanufacturingcapacitythatmirrorsthecapabilitiesofitscompetitors.Instead,thecompanyfocusesitsresourcesonmarketingandon-campuscustomerrelationshipmanagement.Second,UniversityTeesusesstudentsascommissioned-basedsalesrepresentatives,availabletocustomersviacellphonesevendaysaweek,dayornight.Third,thecompanyemploysanartistwhomeetswithcustomersatalocationoftheirchoicetocreateartworkthatexactlycorrespondstotheirpreferences.Fourth,thecompanyprovidescustomerswithanaverageorder-to-deliverycycletimeof7–10days.SinceUniversityTeesusesUnitedParcelService(UPS)forproductdelivery,customerscanplaceandreceiveorderswithouteverhavingtoleavetheirresidence.SinceUniversityTeesdoesnothaveanybricks-and-mortarfacilitiestomaintain,ithasverylowfixedcostsasfollows:Combinedsalariesoftwopartners$20,000peryearOverheadcosts(e.g.,website,phone,fax)$5000peryearMarketingcosts(e.g.,newspaperads,fliers,pens)$2000peryearThevariablecostsincurredbyUniversityTeesincludesalescommissionsof$0.50pershirtsold,a$20artworkfeeperdesign(paidtothecompany’sartist),plusthefollowingcoststoacquirefinishedt-shirtsfromsuppliers:T-shirts$3.00pershirtPrinting$0.50perside,percolor,pershirtforordersof1–50shirts$0.40perside,percolor,pershirtforordersof51–100shirts$0.30perside,percolor,pershirtforordersof101–150shirts$0.20perside,percolor,pershirtforordersgreaterthan150shirtsScreens$15perscreen(eachdesignrequiresaseparatescreenforeachcolorinthedesign;assumecustomersdonotputthesamedesignonthefrontandbackofat-shirt)Shipping$0.60pershirtForexample,ifUniversityTeesreceivedanorderfor70t-shirtsthathadoneartdesignonthefrontrequiringtwocolorsandanotherartdesignonthebackrequiringtwocolors,thetotalvariablecostoftheorderexpressedonapert-shirtbasiswouldbecomputedasfollows:T-shirts($3pershirt)$210.00Salescommission($0.50pershirt)$35.00Shipping($0.60pershirt)$42.00Artworkdesign($20perdesign)$40.00Printing($0.40perside,percolor,pershirt,orinthiscase$1.60pershirt)$112.00Screens($15perscreen)$60.00Totalvariablecosts(a)　$499.00Numberoft-shirts(b)　70Variablecostspert-shirt(a).(b)　$7.135.BiddingoncustomerordersJoeandNickbelievedthatwiththerightpricingstrategytheycouldsellbetween5000and15,000t-shirtsinthecomingyear.Theirsupplierscouldeasilyprovide15,000t-shirtsifthebest-casescenariomaterialized;however,JoeandNickrealizedthatexpectingtosellmorethan15,000t-shirtsinthecomingyearwasoverlyoptimisticgiventhattheirstart-upcompanywas beginningoperationswithnobrandrecognitionontheMiamiUniversitycampus.AsJoeandNickreviewedthreecurrentbidopportunitiesandtheiraverageorderprofile,theywonderedwhatpricepert-shirttochooseforeachofthesefourscenarios.Order1Order2Order3AverageorderNumberoft-shirts306030050FrontoftheshirtNumberofartdesigns1111Numberofcolors1221BackoftheshirtNumberofartdesigns1011Numberofcolors2021Questions：1.HowwouldyoudescribeUniversityTees’strategy?WhatrisksdoesUniversityTeesfacethatmaythreatentheattainmentofitsstrategicobjectives?2.Whatkeyfactorsinfluencethepricesthatcompaniesestablishfortheirproductsandservices?3.DefinethecostdriverforeachofUniversityTees’variablecosts.Withoutcalculatinganynumbers,wouldyouexpectthetotalvariablecostexpressedonapert-shirtbasisforhighvolumeorderstobehigherorlowerthanthetotalvariablecostsexpressedonapert-shirtbasisforlowvolumeorders?Explainyouranswer.4.Whatisthetotalvariablecostexpressedonapert-shirtbasisforeachofthefourorderscenariosinthecase?5.Whatbidpricepert-shirtwouldyouestablishforeachofthefourorderscenariosinthecase(roundyouranswertothenearestdollar)?Wouldyouranswerdifferdependingonwhethereachorderwasplacedbyarepeatcustomeroranewcustomer?Whyorwhynot?6.AreUniversityTees’fixedcostsrelevanttoitspricingdecisions?Whyorwhynot?7.AssumingthatallofUniversityTees’salesconformtoitsaverageorderprofile,useyourrecommendedsellingpricetodeterminethenumberoft-shirtsthatmustbesoldtobreakeven.Also,prepareacontributionformatincomestatementthatshowsUniversityTees’netoperatingincomeifitsells15,000t-shirtsatyourrecommendedprice.8.AssumethatallofUniversityTees’salesconformtoitsaverageorderprofile.Preparetwocontributionformatincomestatements:(a)assume12,000unitsaresoldatapriceof$9pert-shirtand(b)assume8000unitsaresoldatapriceof$10pert-shirt.Whatinsightsabouttherelationshipbetweenprice,quantitysold,andprofitsarerevealedbytheseincomestatements?6.ImplementationguidanceTheUniversityTeescaseisintendedforsophomore-levelmanagerialaccountingclasses.Thecasestrikesanappropriatebalancebetweenofferingarealisticbusinesscontextthatwillengagestudentsandprovidingthesimplicitythatisnecessaryforanintroductorycourse.Thisbalanceisanimportantcontributionofthiscase,giventhatamajorityofcasesarewrittenforanMBAaudienceandpossesstoomuchcomplexityforsophomores.Studentswillneedprerequisiteknowledgeinsixareastosuccessfullyanalyzethecase.First,theywillneedanelementaryintroductiontotheconceptsofstrategyandbusinessrisks.Second, theywillneedtounderstandthedifferencebetweenvariableandfixedcosts.Third,theywillneedtounderstandhowtocomputeabreakevenpoint.Fourth,theywillneedtounderstandhowtopreparecontributionformatincomestatements.Fifth,theywillneedabasicunderstandingofthemeaningofrelevantcosts.Sixth,thecasewillgenerateamoreengagingdiscussionifstudentshavebeenintroducedtosomefundamentalpricingconcepts,suchascost-pluspricingandmarket-basedpricing.Asareferencepoint,thesetopicsarecoveredinchapters1,2,6,13,andAppendixAofManagerialAccounting,12thedition,byGarrison,Noreen,andBrewer.Thissectionofthepaperdescribesthreeapproachesforteachingthecase.First,thecasecanbeusedinagroup-orientedoralpresentationformatin50or75-minuteclasses.Eachgroupofstudentscanbegiventhecasestudy,includingthediscussionquestions,atleastoneweekbeforeoralpresentationswillbegiveninclass.TheprofessorcanrequireallofthegroupstosubmitanelectroniccopyoftheirPowerPointslides24hoursbeforethecasewillbepresentedinclassbytwogroups.Theprofessorcanreviewtheslideshowstoidentifyandselecttwogroupsthathavedifferingapproachestosettingtheirprices.Thesetwogroupscanthenbeaskedtopresenttheirrecommendationsback-to-backin10–20minuteintervals.Theremainingclasstimecanbeusedtodiscussthedifferingpoints-ofviewprovidedbythetwogroupsofpresenters.Second,thecasecanbeassignedasagroup-orientedresearchandwritingassignment.ThescopeofthisassignmentcanexpandedbeyondthespecificfactsoftheUniversityTeescasebyrequiringstudentstoreadoneormoreofthearticlesincludedintheannotatedbibliographythataccompaniestheimplementationguidance.ThesearticlesprovideaplatformforstudentstocreateawrittenreportthatnotonlyanalyzestheUniversityTeescase,butalsooverviewsprominentpricinginsightsandstrategiesusedbyreal-worldcompanies.Third,thecasecanbetaughtwithoutprovidingthestudentsthediscussionquestionsinadvanceofclass.Withthisapproach,studentsareonlyrequiredtothoroughlyreadthecasepriortoarrivinginclass.Theprofessordirectsthestudentstocontemplateonediscussionquestionatatime.Giventhatthestudentshavenotseenthequestions,thisapproachreadilyaccommodatessmall-groupdiscussionsduringclass.Thestudentsbringfreshenergytothequestionsbecausetheyhavenotseenthembefore.Forexample,theprofessorcanposethefirstquestionandthenaskstudentstobreakintogroupsof3–5studentstodescribeUniversityTees’strategyandrisks.Theclasscanreconveneinfiveminutestocollectivelydiscusstheinsightsgeneratedinthegroupdiscussions.Thereisnotenoughtimetohavegroupbreakoutsessionsforalleightquestions,sotheprofessorwillneedtousediscretionintermsofchoosingwhichquestionstouseforgroupbreakoutsandwhichquestionstodiscussasanentireclass.Forprofessorswhoopttousequestionfourforagroupbreakoutsession,werecommendbreakingtheclassintofoursectionsandaskingeachgrouptocompletetherequiredcalculationsforonlyoneofthefourorderscenarios.Thegroupscanthensharetheiranswerswithoneanother,savingalargeamountofclasstimebecauseeachgroupdoesnothavetoengageinfoursetsofredundantcalculations.Includedinthisimplementationguidanceisanannotatedbibliographythatcanbeusedfortwopurposes.First,someofthearticlescanbeusedtoframethediscussionandanalysisoftheUniversityTeescase.Second,someofthearticlescanbeusedtoexpandclassdiscussionbeyondthespecificfactsoftheUniversityTeescasetoprovideabroaderperspectiveonchallengingreal-worldissuesthatinfluencepricingdecisions.Pricingdecisionsareamongthemostimportant decisionsthatcompaniesmake,yetthistopicoftenreceiveslimitedattentionintheclassroom.TheannotatedbibliographyoffershelptoprofessorswhowishtouseUniversityTeesasthecenterpieceofalargerdiscussionofthepracticalrealitiesthatcomplicatepricingdecisions.7.AnnotatedbibliographyAndersonandSimester(2003).Mindyourpricingcues.HarvardBusinessReview(September),96–103.Thisarticlediscussesmanyofthebehavioralaspectsofeffectivepricingstrategies.Forexample,theauthorssuggestthatchoosingpricesthatendinthenumberninesignalsabargaintocustomersandthereforeincreasessales.ThisarticlecomplementsJ.Gourville’s‘‘NoteonBehavioralPricing”thatisalsoincludedinthisbibliography.Thesetworeadingscanbeusedtobroadenthediscussionofpricingtorecognizethefascinatingrealityofhowhumanbehavioraltendenciesinfluencethepricingprocess.Baye,Gatti,Kaufman,andMorgan(2007).Adashboardforonlinepricing.CaliforniaManagementReview(Fall),202–216.Thisarticlediscussesonlinepricingstrategies.SeveralcasestudiesarepresentedforcompanieswhosepricesarelistedatapricecomparisonwebsitecalledKelkoo.Berman(2005).Applyingyieldmanagementpricingtoyourservicebusiness.BusinessHorizons(March/April),169–179.Thisarticledescribeshowservicecompaniesuseyieldmanagementpricingtoearnhigherrevenuesfromtheirfixedcapacityofavailableresources.Itexplainsaneight-stepyieldmanagementpricingimplementationprocess.Yieldmanagementisanexcellenttopicthatallowsprofessorstoexposetheirstudentstohowservicecompaniesmanagethereal-worldcomplexitiesthatinfluencepricingdecisions.Corey(1982).Noteonpricingstrategiesforindustrialproducts.HarvardBusinessSchoolPublishing(pp.1–17).Thisreadingprovidesacomprehensiveoverviewofmanyfactorsthatinfluencepricingdecisionsincludingcost-basedpricing,customervalueandthewillingnesstopay,priceelasticityofdemand,theimpactofcompetitorsonpricing,andcustomerbargainingpower.Dean(1976).Pricingpoliciesfornewproducts.HarvardBusinessReview(November–December),141–153.Thisclassicarticleexplainshowproductsshouldbepricedandrepricedovertheirlifecycle.Itcomparespriceskimmingandpenetrationpricingstrategiesfornewproducts.Dolan(1995).Howdoyouknowwhenthepriceisright?HarvardBusinessReview(September–October),174–183.Theauthordescribeseightstepstobetterpricing.Thesestepsincludeassessingwhatvaluecustomersplaceonaproductorservice,assessingcustomers’pricesensitivity,andanalyzingwhethertherevenuegeneratedisworththecosttoserve.Itoffersexcellentpracticalpricingadvice.DolanandGourville(2005).Principlesofpricing.HarvardBusinessSchoolPublishing(pp.1–10).Thisreadingprovidesanin-depthdiscussionofvalue-pricing.Itprovidesaninterestingdiscussionofhowtoassessaproduct’sobjectivevaluetocustomersandtheproduct’sperceivedvaluetocustomers.Itcanbeusedtoexpandthescopeofdiscussiontoincludea broadoverviewofreal-worldpricingchallenges.Gourville(1999).Noteonbehavioralpricing.HarvardBusinessSchoolPublishing,1–12.Thisreadinghighlightsthefactthatmostcompaniesarewellinformedregardingthecostoftheirproducts,butfarfewercompaniesarewellinformedregardingtheircustomers’willingnesstopayfortheirproducts.Italsohighlightsthefactthatacustomer’swillingnesstopayisnotonlyinfluencedbyrationaljudgmentsabouttheeconomicutilityofaproduct,butalsobypsychologicalfactorsthatarenotnecessarilyrational.Indounas(2006).Makingeffectivepricingdecisions.BusinessHorizons,49,415–424.Thisarticleadvocatescontributionmarginbasedpricing.Theauthorarguesthathisapproachisuniquebecauseitsimultaneouslyconsiderscost-based,competition-based,anddemand-basedpricingmethods.MorroghandZhiwei(1995).Full-costpricing:Apricingstrategyforajobshop.Production&InventoryManagementJournal,36,68–73.Thisarticleprovidesarichdescriptionoffullcost-pluspricing.Itcanbeusedinadebateformattoeducatethosestudentschargedwithdefendingcost-pluspricing.Sahay(2007).Howtoreaphigherprofitswithdynamicpricing.MITSloanManagementReview(Summer),53–60.ThisarticlecanbeusedbyprofessorswhowanttocomplementtheUniversityTeescasewithabroaderdiscussionofsomeinterestingreal-worldpricingchallenges.Dynamicpricingreferstothepracticeofadjustingpricesinrealtimeinresponsetosupplyanddemandpressures.Dynamicpricinghasbeenusedbyairlinesandhotelsformanyyears;however,theauthorscontendthatitisincreasinglybeingusedinavarietyofindustriesincludingapparel,automobiles,consumerelectronics,andtelecommunications.Shapiro(1998).Precisionpricingforprofitinthenewworldorder.HarvardBusinessSchoolPublishing(pp.1–16).Thisreadingdiscussestheconceptofa‘‘zoneofpossibleagreement(ZOPA)”,whichisausefulframeworkfororganizingthediscussionoftheUniversityTeescase.TheceilingoftheZOPAisestablishedbythecustomer’swillingnesstopay.TheflooroftheZOPAistheseller’scost.TheZOPAistherangeofpricesbetweentheceilingandthefloor.TheZOPAcanalsobeusedtoframebroaderdiscussionsofvariouspricingstrategies.Forexample,penetrationpricingmayinvolvepurposelysettingapricebelowthepricefloortoestablishbrandrecognition.Shapiro,Kasturi-Rangan,Moriarty,andRoss(1987).Managecustomersforprofits(notjustsales).HarvardBusinessReview(September–October),101–108.Thisarticleemphasizesthatcustomerdesirabilityisafunctionofprofitabilityratherthansalesvolume.Itintroducestheconceptofcost-to-serveandsuggeststhatcustomersusuallyfallintooneoffourcategories.Forexample,thecarriagetradecategoryreferstocustomerswhocostalottoserve,butwhopaytopdollarforproductsandservices.Theaggressivecustomercategoryreferstocustomerswhodemandhighqualityandthebestservice,whilealsoinsistingonlowprices.Oncecustomershavebeenproperlycategorized,managerscanchanneltheirattentiontothemostprofitablesegmentsofthemarket.ProfessorscandownloadafreeexaminationcopyofHarvardBusinessSchoolPublishingreadingsbyobtainingapasswordatwww.harvardbusinessonline.com.Studentsmustpayforaccesstothesereadings. 8.notesQuestions:1.HowwouldyoudescribeUniversityTees’strategy?WhatrisksdoesUniversityTeesfacethatmaythreatentheattainmentofitsstrategicobjectives?UniversityTeesreliesonacombinationofoperationalexcellence(whichisafunctionofspeed,convenience,andcost)andcustomerintimacytosecurecustomerorders(Treacy&Wiersema,1993).Morespecifically,UniversityTeeshasfoursourcesofcompetitiveadvantage.First,thecompany’saverageorderturnaroundtimeis7–10daysversus10–14daysforitscompetitors.Second,UniversityTeeshasanartistandsalesrepresentativeswhomeetwithcustomersatconvenienttimesandlocations.Furthermore,thecompanyreliesonUPStodeliverordersdirectlytothecustomers’doors.CollegeCustomApparel(CCA)requirescustomerstocometoitsstorelocationduringtraditionalbusinesshourstoplaceorders,completecustomartwork,andtopickupfinishedt-shirts.Third,UniversityTeesbelievesthatmanufacturingqualityisnotadifferentiatorinthecustomt-shirtbusiness;therefore,thecompanylowersitsoverheadcostsbyoutsourcingproduction.Finally,UniversityTeescreatescustomerintimacybyhavinganartistmeetpersonallywitheachcustomertocreatecustomizeddesignstailoredtoeachcustomer’spreferences.Thisapproachdiffersfrominternetcompaniesthatrelyonclip-artforcreatingcustomizedt-shirts.UniversityTeesfacesnumerousrisks,fiveofwhicharedescribedhere.First,UniversityTeesreliesonstudentrepresentativestopromotethecompanyanditsproducts.Ifthesestudentsacquirepoorreputationsorareunabletogainfavoramongtargetcustomergroups,UniversityTeesmayexperiencedecreasedmarketshare.Second,thecompanygeneratesalmostallofitssalesfromcollegestudents.Becausestudentgroupscompletelyturnoverroughlyeveryfouryears,UniversityTeesmayhavedifficultycreatingasteadybrandimageandmaintaininglong-termcustomerloyalty.Third,UniversityTeesoutsourcest-shirtproduction.Ifthesuppliercannotfulfillanorderforunforeseenreasons,UniversityTeessufferstheconsequencesintermsoflostcustomersanddamagetoitsreputation.Fourth,UniversityTeesoperatesinanenvironmentthatisextremelypricesensitiveandhaslowbarrierstoentry.IfUniversityTeeshasincreasedpressuretoreduceprices,itmaynotbeabletogeneratesufficientprofits.Finally,UniversityTeessellsitsproductsprimarilytostudentgroupsthatareoftenstrappedforcash.Ifthesestudentgroupsareunabletopaytheirbills,thenUniversityTeesmayincurcashflowproblemsandmayincurextracoststocollectitsaccountsreceivable.2.Whatkeyfactorsinfluencethepricesthatcompaniesestablishfortheirproductsandservices?Thethreekeyfactorsthatinfluencepricingdecisionsarecustomers,competitors,andcost.Customersandcompetitorsdefinethepriceceiling—thehighestpossibleprice.Acompany’scostsdefinethepricefloor—thelowestacceptableprice.Thegapbetweenthepriceceilingandthepricefloorisknownasthezoneofpossibleagreement,orZOPA(Shapiro,1998).Theteachingnotesforthisquestionfocusonthepriceceiling,alsoknownasthecustomers’willingnesstopay.Theroleofcostsinestablishingthepricefloorwillbeaddressedinquestion6.Whenacompany’sproductsandservicesarelargelyundifferentiatedfromthoseofferedbycompetitors,thecustomers’‘‘willingnesstopay”isheavilyinfluencedbycompetitorprices.Conversely,whenacompany’sproductsandservicesareclearlydifferentiated(eitherthrough tangibleattributesorperception)fromthoseofferedbycompetitors,thecustomers‘‘willingnesstopay”islessinfluencedbycompetitorprices.InthecaseofUniversityTees,thetypicalcustomersarestudentgroupssuchasintramuralsportsteams,sororitiesandfraternities,theatreandbandgroups,andprofessionalsocieties.Thesegroupsoftenplaceseveralt-shirtordersperyear,andtheyusuallyhavemodestamountsofdiscretionarycashavailablefortheirt-shirtpurchases.ThecustomershavegreaterbargainingpowerthanUniversityTeesbecauset-shirtsareessentiallyacommodity.Furthermore,customerscanreadilyobtainpricequotesfromnumerouscompetitors,andthecostsofswitchingfromonecompanytoanotherareminimal.Theserealitiesenablecustomerstoexertdownwardpressureonthepriceceiling.Sincet-shirtsarelargelyacommodityproduct,thecompetitionisinstrumentalinhelpingUniversityTeesdefineitspriceceiling.IfUniversityTeesattemptedtosetpricesabovethecompetition,thenitwouldstruggletowincustomerordersbecausecustomerscouldreadilychooselower-pricedoptionsofcomparablequalityproducts.WhileUniversityTeesofferscompetitiveadvantagesoverCCAandinternetproviders,itisunlikelythatcash-strappedstudentgroupswouldbewillingtopayapremiumfort-shirtspurchasedfromUniversityTees.Forexample,ifUniversityTeestriedtochargeonedollarpert-shirthigherthancompetitorsonanorderof50t-shirts,itiseasytoenvisionastudentgroupsaying,‘‘I’lltraveltheonehalfmiletoCCAtosave50bucks!”.Itbearsemphasizingthatallbusinessesdonotworkthisway.Companiesthatcompeteintermsofproductleadershipdonotautomaticallyassumethatacompetitor’spriceissynonymouswiththepriceceiling.Forexample,whilecompaniessuchasProcterandGamblecertainlypayattentiontocompetitorprices,theyalsotrytocreatebrandloyaltythatenableschargingapricepremium.3.DefinethecostdriverforeachofUniversityTees’variablecosts.Withoutcalculatinganynumbers,wouldyouexpectthetotalvariablecostexpressedonapert-shirtbasisforhighvolumeorderstobehigherorlowerthanthetotalvariablecostsexpressedonapert-shirtbasisforlowvolumeorders?Explainyouranswer.Thisquestionenablesprofessorstoexploretwoimportantconceptswithrespecttocostbehavior.First,acompanycanhavemorethanonecostdriver.Volumeofproductionisfrequentlycitedintextbooksasthepredominantcostdriver;however,costscanvarywithrespecttonumerouscostdrivers.InthecaseofUniversityTees,studentsshouldbeabletoidentifyfourcostdrivers.Thenumberofshirtsincludedinanorderdrivesthetotalt-shirtcost($3.00pert-shirt),thetotalshippingcost($0.60pert-shirt),andthesalescommission($0.50pert-shirt).Thenumberofshirtsorderedalsoinfluencestheprintingcosts,whichdecreaseby$.10perside,percolor,pershirtinincrementsof50shirtstoafloorof$0.20perside,percolor,pershirt.Thesecondcostdriver,thenumberofsidestobeprintedoneachshirt,alsoinfluencestheoverallprintingcost.Thethirdcostdriver,thenumberofcolorstobeprintedoneachsideoftheshirt,alsoinfluencestheoverallprintingcostanddrivesthecostofscreens.Thefourthcostdriver,thenumberofartdesigns,drivestheartworkfee.Thesecondkeylearningobjectiveofthisquestionistohelpstudentsseethatonespecificcostcanbeinfluencedbymorethanonecostdriver.InthecaseofUniversityTees,thecostofeachcustomerorderisinfluencedbythefourcostdriversmentionedinthepriorparagraph.Thesimultaneousimpactofthesefourcostdriverscreatesasituationwherethevariablecostofa customerorderexpressedonaper-t-shirtbasisdoesnotremainconstant.Instead,thevariablecostpert-shirtforhighvolumeorderswillbelowerthanthevariablecostpert-shirtforlowvolumeorders.Theleft-handcolumnofnumericaldatainthetablebelowmirrorsthedatafortheaverageordergiveninthecase.Theright-handcolumnofnumericaldatainthetableisthesameastheaverageorderprofilegiveninthecaseexceptthenumberoft-shirtsisincreasedfrom50to100.Thistableshowsthatt-shirtcosts($3.00),salescommissions($0.50),andshippingcosts($0.60)areconstantonapert-shirtbasis.However,thetotalartworkdesigncostsfortheaverageorderare$40.Whenthiscostisspreadacross50t-shirts,theaveragecostpert-shirtis$0.80,whereasthesametotalcostspreadacross100t-shirtsisanaveragecostof$0.40pert-shirt.Similarly,thetotalscreencostfortheaverageorderis$30,or$0.60perunitforanorderof50shirtsversus$0.30perunitforanorderof100t-shirts.Finally,theprintingcostdecreasedby$0.10instep-functionfashionasthevolumeoft-shirtsorderedincreased.Therefore,theprintingcostpert-shirtfortheaverageorderis$1.00foravolumeof50shirtsand$0.80foravolumeof100shirts.Theartworkdesign,printing,andscreencostsexplainwhythetotalvariablecostofanorder,expressedonapert-shirtbasis,declinesastheordersizeincreases.AverageAverageorderorderNumberoft-shirts50100FrontoftheshirtNumberofartdesigns11Numberofcolors11BackoftheshirtNumberofartdesigns11Numberofcolors11Costpert-shirtT-shirts($3pershirt)$3.00$3.00Salescommission($0.50pershirt)$0.50$0.50Shipping($0.60pershirt)$0.60$0.60Artworkdesign($20perdesign)$0.80$0.40Printing($0.50,$0.40,$0.30,$1.00$0.80or$0.20perside,percolor,pershirt,dependingonthesizeoftheorder)Screens($15perscreen)$0.60$0.30Totalvariablecostspert-shirt(a)$6.50$5.60Numberoft-shirts(b)50100Totalcostoftheorder(a).(b)$325.00$560.004.Whatisthetotalvariablecostexpressedonapert-shirtbasisforeachofthefourorderscenariosinthecase?Order1Order2Order3AverageorderNumberoft-shirts306030050Frontoftheshirt Numberofartdesigns1111(continuedonnextpage)Table–continuedOrder1Order2Order3AverageorderNumberofcolors1221BackoftheshirtNumberofartdesigns1011Numberofcolors2021T-shirts($3pershirt)$90.00$180.00$900.00$150.00Salescommission($0.50pershirt)$15.00$30.00$150.00$25.00Shipping($0.60pershirt)$18.00$36.00$180.00$30.00Artworkdesign($20perdesign)$40.00$20.00$40.00$40.00Printing($0.50,$0.40,$0.30,or$45.00$48.00$240.00$50.00$0.20perside,percolor,pershirt,dependingonthesizeoftheorder)Screens($15perscreen)$45.00$30.00$60.00$30.00Totalvariablecosts(a)$253.00$344.00$1,570.00$325.00Numberoft-shirts(b)306030050Variablecostspert-shirt(a).(b)$8.43$5.73$5.23$6.50CCAprice$10Averageinternetprice$115.Whatbidpricepert-shirtwouldyouestablishforeachofthefourorderscenariosinthecase(roundyouranswertothenearestdollar)?Wouldyouranswerdifferdependingonwhethereachorderwasplacedbyarepeatcustomeroranewcustomer?Studentsmayderivevariousanswerstothesequestions.However,thelowestacceptablepricefororder1is$9pershirtbecausethevariablecostpert-shirtderivedinquestion4is$8.43.Sincebidpricesneedtoberoundedtothenearestdollar,$9isthelowestpricethatwillyieldapositivecontributionmargin.Similarly,thelowestacceptablepricefororders2and3is$6pershirtbecausethevariablecostspert-shirtfortheseordersare$5.73and$5.23,respectively.Thelowestacceptablepricefortheaverageorderprofileis$7pershirtgiventhatthevariablecostpert-shirtis$6.50.Fortheaverageorderprofiledepictedinthecase,thepriceceilingis$10pert-shirtbecausethatisthepricechargedbyCCAforanorderof50t-shirtswithaone-colordesignonthefrontandanotherone-colordesignontheback.UniversityTeeshopesthatitsoperationalefficiencyandcustomizedservicecreatecustomerloyalty.Highlysatisfiedrepeatcustomersarelikelytoabsorbamodestpriceincreaseassumingthehigherpriceisstillequaltoorlessthanthatofthecompetition.6.AreUniversityTees’fixedcostsrelevanttoitspricingdecisions?Whyorwhynot?Anotherwaytophrasethisquestionistoaskstudentsifincrementalcostsorfully-allocatedcostsshouldbeusedtodefineacompany’spricefloor.Thisquestionprovidesawonderfulopportunitytodiscussthecompetingpointsofviewonthevalueofcost-pluspricing,whichiscommonlyusedinpractice.Fullcost-pluspricingadvocatesarguethat:(1)mostsmallcompaniesdonotknowtheircustomers’willingnesstopay,(2)allcosts,fixedandvariable,needtobecoveredtoearnaprofit,(3)allcustomersneedtopaytheirfairshareoffixedcosts—otherwise,howdoesacompanydecidewhichcustomersreceivepricesthatarebelowfullcostandwhich customerspayfullprice?,and(4)allowingmarketingemployeestousemarginalcost-pluspricingwouldcreatemanyunprofitablesales.Criticsoffullcost-pluspricingarguethatusingthisapproachmayresultinpricesthathavebeenarbitrarilysettoohighortoolow,therebysub-optimizingprofits.Theyarguethatthefundamentalflawoffullcost-pluspricingisthatirrelevantfixedcosts—thatwillnotdifferunderanyofthepricingalternativesbeingconsidered—areincludedinthepricecomputation.Furthermore,criticssuggestthatthefullcostapproachisbasedontheflawedassumptionthatacompany’scustomerswillautomaticallychoosetobuytheprojectedvolumeofproductionatapricethatcoversallcosts.InthecaseofUniversityTees,thefixedcostsarenotrelevanttothepricingdecisionsbecausetheyremainunchangedunderallpossiblepricingscenarios.However,manystudentswillbeinclinedtoassignfixedoverheadcoststoeachordertoenablefullcost-pluspricing.Forexample,thecasestatesthatJoeandNickbelievetheycansellsomewherebetween5000and15,000t-shirts.Studentsmaybeinclinedtousethemidwaypointof10,000shirtsasthedenominatorwhencalculatingthefixedcostspershirtthatmustbecoveredbytheprice.Giventhefixedcostsof$27,000,theresultingrateis$2.70offixedcostspershirt.Whenthisamountisaddedtotheaverageorderprofile’svariablecostpershirtof$6.51,ityieldsafullcostof$9.21pershirt.Thistypeofanalysismaycausestudentstosuggestthattheonlyviablepriceis$10.Thisisaconceptuallyflawedthoughtprocessfortworeasons.First,itassumesthatcustomerswouldautomaticallybewillingtobuy10,000shirtsatapriceof$10each.Thisisuntruebecausecustomersmaychoosetobuyfewerthan10,000shirtsatthatprice.Second,itoverlooksthefactthatcustomersmaybuymorethan10,000shirtsifthepriceislessthan$10.Usingafullcostcalculationtoeliminate$9asaviablepriceoverlooksthefactthat,dependingonthecustomers’priceelasticityofdemand,$9maybetheprofit-maximizingprice.Inthiscase,thepricingstrategyshouldbedesignedtomaximizethecontributionmarginearned.Confoundingthepricingdecisionwithirrelevantfixedcostscanonlyhinderthedecision-makingprocess.Theanswertoquestion8highlightsthefactthatusingfullcost-pluspricingtoeliminate$9asaviablepricecanpotentiallyresultinsub-optimalprofits.7.AssumingthatallofUniversityTees’salesconformtoitsaverageorderprofile,useyourrecommendedsellingpricetodeterminethenumberoft-shirtsthatmustbesoldtobreakeven.Also,prepareacontributionformatincomestatementthatshowsUniversityTees’netoperatingincomeifitsells15,000t-shirtsatyourrecommendedprice.Giventhatthepriceflooris$7andthepriceceilingis$10,studentsshouldhavechosenoneoffourprices.Thebreakevenpointinunitsforeachofthesefourscenariosisshownbelow:Recommendedprice$7.00$8.00$9.00$10.00Variablecosts$6.51$6.51$6.51$6.51Contributionmargin$0.49$1.49$2.49$3.49Fixedcosts(a)$27,000$27,000$27,000$27,000CMpert-shirt(b)$0.49$1.49$2.49$3.49Breakeveninunits(a).(b)55,10318,12110,8447737Thecontributionformatincomestatementsforthesefourscenariosareshownbelow:Recommendedprice$7.00$8.00$9.00$10.00Sales$105,000$120,000$135,000$150,000 Variablecosts$97,650$97,650$97,650$97,650(continuedonnextpage)Table–continuedRecommendedprice$7.00$8.00$9.00$10.00Contributionmargin$7350$22,350$37,350$52,350Fixedcosts$27,000$27,000$27,000$27,000Netoperatingincome$19,650$4650$10,350$25,350Theabovetwotableshighlightthefactthatchoosingthelowestpossiblepricethatgeneratesapositivecontributionmarginperunitisnotnecessarilythebestpricingstrategy.Apriceof$7or$8generatesapositivecontributionmargin,butitdoesnotgenerateaprofit.Thetwoviablepricesappeartobe$9or$10perunit.8.AssumethatallofUniversityTees’salesconformtoitsaverageorderprofile.Preparetwocontributionformatincomestatements:(a)assume12,000unitsaresoldatapriceof$9pert-shirtand(b)assume8000unitsaresoldatapriceof$10pert-shirt.Whatinsightsabouttherelationshipbetweenprice,quantitysold,andprofitsarerevealedbytheseincomestatements?Thetwoincomestatementswouldbeasfollows:$9.00$10.00Sales$108,000$80,000Variablecosts$78,120$52,080Contributionmargin$29,880$27,920Fixedcosts$27,000$27,000Netoperatingincome$2880$920Thecontributionformatincomestatementsshownassolutionstoquestion7indicatethata$10pricewillgeneratethehighestincomeif15,000unitsaresold.However,theincomestatementsshownaboveillustratehowthepriceelasticityofdemandconceptprohibitsstudentsfromautomaticallyassumingthat$10istheoptimalpricefortheaverageorderprofile.IfUniversityTeescansell12,000t-shirtsatapriceof$9,thenitwillearnmorecontributionmarginthanifitisonlyabletosell8000t-shirtsatapriceof$10.ReferencesAnderson,E.,&Simester,D.(2003).Mindyourpricingcues.HarvardBusinessReview(September),96–103.Baye,M.,Gatti,R.,Kaufman,P.,&Morgan,P.(2007).Adashboardforonlinepricing.CaliforniaManagementReview(Fall),202–216.Berman,B.(2005).Applyingyieldmanagementpricingtoyourservicebusiness.BusinessHorizons(March/April),169–179.Corey,R.(1982).Noteonpricingstrategiesforindustrialproducts.HarvardBusinessSchoolPublishing(pp.1–17).Dean,J.(1976).Pricingpoliciesfornewproducts.HarvardBusinessReview(November–December),141–153.Dolan,R.(1995).Howdoyouknowwhenthepriceisright?HarvardBusinessReview(September–October),174–183.Dolan,R.,&Gourville,J.(2005).Principlesofpricing.HarvardBusinessSchoolPublishing(pp. 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