Analyzing Managerial Decisions
Analyzing Managerial Decisions
Case 1: Rich Manufacturing
1. Entities use cost and pricing for various reasons, which are in the best interest of the company. Companies use such approaches to shield themselves from cost overrun attributable to increase in costs of production. In addition, entities, which use such approaches, are able to focus on their profit objectives.
2. Cost-plus pricing approach creates room for inefficiency and overpricing of commodities leading to inflated prices of commodities (Brickley, Smith, & Zimmerman, 2009).
3. Gina should contest the price or seek alternative suppliers as long as Bhagat is not operating as a monopoly in the field. In addition, as a regular customer the company could waiver the approach and charge them for the products based on their regular old prices.
4. The increase is only justifiable in the short run because the company is able to gain profits irrespective of the increase in the cost of labor, which might affect its profitability if it was not based on a cost-plus pricing approach (Brickley, Smith, & Zimmerman, 2009).
5. Gina will have to increase the prices of the products she produces to remain profitable and avoid cost overruns. In addition, she might also have to reduce the amount of parts she buys to attain to avoid high costs of production.
Chapter 5 – “Analyzing Managerial Decisions: Rich Manufacturing” page 170
Case 2: Setting Tuition and Financial Aid
Susan’s view is that new students for the previous year = 400 students* $15,000= $6,000,000
Next academic year = 600new students * $25,000 =$15,000,000
A student increase of 50% would bring an increase in the revenues of 150%
Hence from such a perspective if the organization was to further increase the costs of tuition and other school expenses the increase in number of students will result in an increase of three times more the amount of revenues realized.
Chapter 4 – “Analyzing Managerial Decisions: Setting Tuition and Financial Aid” page 110
Case 3: iTunes Music Pricing
1. The various music-recording companies have the individual music pricing policies. Some have the view that Apple should increase its prices others are of the view that the costs should be held constant. The numerous companies, which are in competition, would attract various customers who are wooed by the various prices and quality of music they purchase from Apple. Hence, the company would be able to share profits based on the agreed terms with the Music Companies
2. Reduction in the cost of online music has the likelihood of attracting more buyers who opt to buy online music instead of records sold in music shops. In addition, the company could also resort to sale of large music files such as MP3s, JPEG and MP4 and other music formats for various consumer needs (Brickley, Smith, & Zimmerman, 2009).
3. Sophisticated means of pricing might result to reduced earnings because it becomes difficult to have consistency in the sale of the music. In addition, sophisticated means of pricing are likely to accrue more profits because of various channels of revenue generation.
4. Apples aim of selling music can be attributed to increasing the sale of its music players with specific reference to the iPod. In addition, the sale of music would provide a great platform for people to experience its products. However, the aim of the music record companies is the sale of music via online means. This has been a new source of revenue with the rapid growth of the internet. This has been another source of revenue, which is proving to be lucrative as more people use the internet to conduct their daily activities.
5. With the increase in the demand for online based music, Apple is likely to increase its prices to gains more form the demand of its products. The company cannot however enforce high prices on the consumers because the sale of online music is still in its developmental stages. In addition, the need to satisfy Music Company demands to increase prices might leave Apple bowing in to the pressure and increasing prices for the music (Brickley, Smith, & Zimmerman, 2009).
Chapter 7 – “Analyzing Managerial Decisions: iTunes Music Pricing” pages 231-232
Case 4: United Airlines
No. the costs of running the service are serviced by other services which contribute to the image of the company as well as the overall costs of the program. In addition, the presence of numerous costs can be trimmed to erase the losses accrued form the service. The unnecessary items within the service can be removed to enable the company pay for the vital services for the consumers. Moreover, the company might also have the option of new pricing strategies and marketing to enhance its competitiveness, increase its competitive advantage, and thus attract more consumers.
Chapter 6 – “Analyzing Managerial Decisions: United Airlines” page 185
Brickley, J., Smith, C., & Zimmerman, J. (2009). Managerial economics and organizational architecture (5th ed.). New York: McGraw Hill/Irwin. ISBN: 978-0-07-337582-3.