- BTC's market share for product T30 declined from 56% in 1988-1989 to an estimated 33% in 1990 as its price increased, while competitor C&P's share rose to 67%. - Keeping the price at $4/yard allows BTC to cover its fixed costs and make a profit if it sells over 72,000 yards. Increasing its sales volume would further boost profits. - The analysis recommends BTC maintain the $4 price and aim to sell at least 80,000 yards, while encouraging C&P to also keep its price at $4. This would increase BTC's market share and profits.

1. Beauregard Textile Company Case Study

3. 1989- BTC-56% (503K) and C&P 44% (400 K)

4. 1990 (est)-BTC-33% (302K) and C&P 67% (450 K)

6. 1990 – ASP 4, CM = 84 cents (21%), FC 80 cents, EM 1%

7. Total fixed costs @ 60000 USD, FC / unit ↓with higher units sold

8. We have taken only indirect costs associated with production as fixed costs – depreciation, supervision

9. All other costs are variable as they are directly linked to the number of yards produced

11. Recover the cost ↑ in raw material (nylon, polypropelene, and rayon) by passing it on to it’s customers

13. C&P -Breakeven @ 3 USD occurs @ 300 K yards more than the market size -By selling more units of T30 C&P is a threat to BTC but loses money, can they reduce price to below 3, 2.85, VC= 2.80, 1.2 M yards

14. @ 4 USD & 74 K/ Q CM is 84 cents (21%) >fixed costs 80 cents (20%)- profit before tax 1%

15. Breakeven @ 4 USD occurs @ 72K yards (BTC profitable before taxes since Q1, 1990)

16. If C& P ↑ price BTC ↑its market share back to 56% of 180 K /Q or 100K ↑it’s profitability to 11%

18. Help C&P increases price to 4 USD – windfall gain additional 25 K yards

19. Try to reduce fixed costs by looking at direct labour costs, space, lease contracts, supervisors

20. Try to reduce variable costs by working on raw material inventory & reducing the sales and administrative costs (line item review)

21. Option – Not feasible (price war, C&P financial capabilities underestimated, loss making product, can we raise price back to 4 USD once C&P is insolvent??)Option

22. Back Up June 2011 Folie 5

24. In our analysis we find that the only fixed cost is the indirect costs related to the depreciation of the assets and the supervision of the personal on the shop floor

26. BTC lost 22% of market share with a 33% price increase in Q1, 1990, C&P took its market share to 67%

27. Q4 pricing linked to volume, volume fixed @ 225k yards/Q, if both parties increase price to 4 then volume drops 20% to 180000 yards/ Q which we assume will be split 56% BTC & 44% C&P (100 K & 80 K)

29. By ↑price -4 USD BTC ↑it’s contribution margin to 21% allowing cover of fixed cost & profit before taxes

30. By keeping price -3USD C&P ↑ it’s sales 66% (150k yards) & it’s contribution margin moved to 9%

32. The only options are to either improve productivity and / or increase price as the total variable cost of production / yard is linked to the number of units produced (will increase in proportion) and by selling more @ 3USD price will not increase profitability

34. BTC can cover it’s fixed costs and makes profit before tax by selling >72000 yard

36. BTC has a higher contribution margin than C&P

37. Only by increasing price to 4 USD/ yard can BTC & C&P cover their fixed costs have positive earnings before taxes