Case Brunswick Plastics Essay

2980 Words May 19th, 2015 12 Pages
Brunswick Plastics
This case deals with cost analysis for pricing new business in a small injection moldingjob shop in "the Maritimes" in 1986, a good business year.

In Septe mber of 1986 Michael Smith, Division Manager of Brunswick Pla stics, faced an important pricing decision on a majo r new b id opportunity . Michael knew that pric ing too high m eant losing a bid that wo ul d em ploy currently unused capacity. On th e other hand, pricing too low meant l osses on the j ob. In the first two months after Michael arri ved in Novemb er of 1984, the presses were running only about 40% of available machine hours. The division had recently lost two large contracts and was struggling to find a solid market position. Michael had instituted a
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Materials costs could be estimated by the weight of the final product since the material in most defective products could be reused. The assembly and testing operations involved the use of machines that

were both highly reliable and labor-paced.
These difficulties and the costing issues were all on
Michael's mind as he considered the mi lk crate contract.

THE MILK CRATE CONTRACT

crates through the Dairy Council in order to take maximum advantage of possible quant ity discounts.
'
Michael had been asked to submit a bid on an in itial order of 150,000 units. It was clear in Michael's mind that a successful initial bid would give BP a competitive advantage in future orders.
Michael felt that the successful bid price for these crates would be "$3.00 p lus or minus ten cents."
Michael had been appr oached by the customer several times and felt that BP's reputati on for quality would

that a $3.00 bid would be successful. As a result, estimating the bid price was not the major issue. The

ensure

question to be resolved was whether or not, given its cost structure, $3.00 could cover BP's costs of

producing this product.
Discussions with Walt Roberts and Larry Bobbit,
BP's technical and production supervisors, suggested that the machine cycle time t o produce th is product would be 50 seconds per unit. The product would be produced in a stationary mold and would be automatically ejected at the rate of one every 50 seconds. As a result, Michael calculated that it would

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