Berkshire Threaded Fastener Case Study

Table of Contents

Page

Case Summary 3

Problem Statement 3

Introduction 5

Question 1 7

Question 2 9

Question 3 13

Break-Even analysis 15

Variance analysis 18

Question 4 20

Case Summary

Berkshire is one of the eight companies in threaded fasteners industry in New England. The company produces 3 types of metal fasteners (nuts & bolts), including 100 series, the 200 series and the 300 series. The products are sold by the company’s salaried sales force throughout New England. In 1973, Berkshire’s share on industry sales in New England was 12% for the 100 series, 8% for the 200 series, and 10% for the 300 series; and the industry quoted selling prices were at $2.45, $2.58 and 2.75 per 100 pieces respectively.

John Magers took over the company since his father’s untimely death in 1973. He had made several poor decisions resulted in loss of $70,000 in that year, hence the organization had lost confidence in him. John decided to hire Brandon Cook as the General Manager in Feb 1974. Cook would have full authority to run the company and explains the reasons for every decision he made with the hope to train John Magers for successful leadership upon Cook’s retirement. Thanks to Cook’s management the first half of 1974 was a modestly successful period, but the second half of this year will be a challenging period because of price reduction on 100 series announced by the main competitor, Bosworth.
With excess capacity for all industry players and very similar products, price competition was always a threat for the industry. Several changes have been proposed by the company management to increase profit and improve long-run profitability.

Problem Statement

Having inelastic demand for metal fasteners, price reduction has not been an effective strategy where the industry as