What other factors can the company afford to adopt

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What other factors ..... Can the company afford to adopt the special order price long-term or with other customers who may ask for price concessions? Determine if the possibility of future long-term sales from Aaron seems likely The effect on customer relationships by refusing sales from existing customers. All of the above
E11-21 Page 8 Superior Lawn, a manufacturer of lawn mowers, predicts that it will purchase 264000 spark plugs next year. Superior Lawn estimates that 22000 spark plugs will be required each month. A supplier quotes a price of 11 per spark plug. The supplier also offers a special discount option. If all 264000 spark plus are purchased at the start of the year, a discount of 5.00% off the 11 price will be given. Superior Lawn can invest its cash at 10.00% per year. It costs Superior Lawn 230 to place each purchase order? Requirements ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 10.45 1379400 11 121000 Difference in average investment x Investment percentage = opportunity cost 1258400 10.00% 125840 Annual purchase-order costs 230 2760 -2530 Annual purchase costs 2758800 2904000 -145200 Annual interest income that could be earned if investment in inventory were invested 137940 12100 125840 Relevent costs 2896970 2918860 -21890 PREFERRED
P11-31 Page 9 Larry Miller, the general manager of Classic Software, must decide when to release the new version of Classic's spreadsheet package, Easyspread 2.0. Development of Easyspread 2.0 is complete; however, the diskettes, compact discs, and user manuals have not yet been produced. The product can be shipped starting July 1, 2011. The major problem is that Classic has overstocked the previous version of its spreadsheet package, Easyspread 1.0. Miller knows that once Easyspread 2.0 is introduced, Classic will not be able to sell any more units of Easyspread 1.0. Rather than just throwing away the inventory of Easyspread 1.0, Miller is wondering if it might be better to continue to sell Easyspread 1.0 for the next 3 months and introduce Easyspread 2.0 on October 1, 2011, when the inventory of Easyspread 1.0 will be sold out. The following information is available: Easy 1.0 Easy 2.0 Selling price 170 215 Variable cost per unit of diskettes, compact discs, user manuals 20 34 Development cost per unit 55 90 Marketing and administrative cost per unit 31 36 Total cost per unit 106 160 Operating income per unit 64 55 Easy 1.0 Easy 2.0 Relevent Relevent Irrelevent Relevent Irrelevent Irrelevent Irrelevent Irrelevent Easy 1.0 Easy 2.0 170 215 0 34 0 0 0 0 0 34 170 181 SHOULD NOT WAIT Customer satisfaction IF 2.0 IS SIGNIFICANTLY BETTER THAN 1.0 FOR ITS CUSTOMERS, A CUSTOMER-DRIVEN ORGANIZATION WOULD IMEDIATELY INTRODUCE IT. Quality level CONSIDER AN IMMEDIATE RELEASE ONLY IF 2.0 PASSES ALL QUALITY TESTS AND CAN BE FULLY SUPPORTED BY THE SALES FORCE. Market leader BEING THE MARKET LEADER GIVES AN ADVANTAGE IN CAPTURING A LARGE SHARE OF THE MARKET AND FORCES COMPETITORS TO PLAY CATCH UP. Employee moral DELAYING INTRODUCTION OF A NEW PRODUCT CAN HURT MORALE ESPECIALLY IF A COMPETITOR BEATS THE COMPANY.

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