Fixed rmb pricing of the pt350 plasma cutting torch

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Fixed Rmb Pricing of the PT350 Plasma Cutting TorchCostMarginPriceMarginAverage RatePricePercent ChgYear(Rmb)(Rmb)(Rmb)(percent)(Rmb/US$)(US$)in US$ Price200716,000 2,000 18,000 11.1%7.61 2,365 --- 200815,400 2,600 18,000 14.4%6.95 2,590 9.50%200914,800 3,200 18,000 17.8%6.83 2,635 1.76%201014,700 3,300 18,000 18.3%6.77 2,659 0.89%201114,200 3,800 18,000 21.1%6.46 2,786 4.80%201214,400 3,600 18,000 20.0%6.31 2,853 2.38%201314,600 3,400 18,000 18.9%6.15 2,927 2.60%201414,800 3,200 18,000 17.8%6.16 2,922 -0.16%Cumulative23.54%Fixed Rmb Pricing of the PT350 Plasma Cutting TorchCostMarginPriceMarginAverage RatePricePercent ChgYear(Rmb)(Rmb)(Rmb)(percent)(Rmb/US$)(US$)in US$ Price200716,000 2,000 18,000 11.1%7.61 2,365 --- 200815,400 6.95 200914,800 6.83 201014,700 6.77 201114,200 6.46 201214,400 6.31 201314,600 6.15 201414,800 6.16 CumulativePeng Plasma is a privately held Chinese business. It specializes in the manufacture of plasma cutting torches. Over the past eight years it has held the Chinese renminbi price of the PT350 cutting torch fixed at Rmb 18,000 per unit. Over that same period it has worked to reduce costs per unit, but has struggled of late due to higher input costs. Over that same period the renminbi has continued to be revalued against the U.S. dollar by the Chinese government. After completing the table – assuming the same price in renminbi for all years – answer the following questions.a. What has been the impact of Peng's pricing strategy on the US$ price? How would you expect their U.S. dollar-based customers to have reacted to this?
Problem 1.9 Santiago Pirolta's Compensation Agreement2014USD 860 1.8%MXN 13.40 MXN 11,524 7.4%Santiago Pirolta has accepted the Managing Director position for Vitro de Mexico's U.S. operations. Vitro is a Mexico-based manufacturer of flat and custom glass products. Much of its U.S. sales are based on a variety of bottle products, both mass market (e.g., glass bottles for soft drinks and beer) as well as specialty products (high-end cosmetic bottles with rare metal coloring and quality). He will live and work in the United States (Dallas, Texas) and wishes to be paid in US dollars. Vitro has agreed that his base salary of USD350,000 will be paid in U.S. dollars, but Vitro wishes to tie his annual performance bonus to the Mexican peso value of U.S. sales since Vitro consolidates all final results for reporting to stockholders in Mexican pesos (MXN).Santiago, however, is a bit uncertain on having his bonus based on the Mexican peso values of U.S. sales. As a close friend and colleague, what advice would you give him based on your completion of the table below?Vitro's U.S. SalesPercentAnnual Avg RateVitro's U.S. SalesPercentYear(millions of USD)ChangeMXN = 1 USD(millions of MXN)Change2011USD 820 MXN 12.80 MXN 10,496 2012USD 842 2.7%MXN 13.30 MXN 11,199 6.7%2013USD 845 0.4%MXN 12.70 MXN 10,732 -4.2%Based on Vitro's U.S. sales, in both U.S. dollars and Mexican pesos, you should recommend that Santiago continue to argue for his performance bonus to be based on the U.S. dollar value, not the translated Mexican peso value. First, under the previous Managing Director, U.S. sales measured both ways was volatile. The volatility, however, was larger in pesos than dollars. If that was the only concern, then it would only be up to Santiago to choose his 'risk tolerance' -- how much volatility he is willing to bear in his annual performance bonus.

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