Computron Case
Computron Inc.
Q1: How far does Zimmermann have to cut the price to have a chance?
The cost of a 1000X computer for the European market usually consists of the cost to manufacture ($768’000), the overheads, a markup of 33 1/3% ($256’000) that includes the profit, research and development and selling expenses; in addition to these components, there are transportation and installation costs ($67’200) and finally the import duty ($153’600). Computron Inc. has previously assembled and manufactured its products in the US and shipped ready goods to Europe, thus having to raise the original US price in order to cover the expenses of the last component of the price, the import duty. Given that the company has made a strategic decision to build a factory in Frankfurt that would cover the assembling and manufacturing services for the European market, that consists of 15 countries, and given that the opening of this newly constructed facility is the 15th of September 2006; it is valid to assume that the manufacturing and assembly of the 1000X computer for Köning & Cie, AG, if the order is made, would take place at the local facility in Germany, rather than in the US. This factor eliminates the expenses related to import duty ($ 153’600) as well as significantly reduces the transportation costs. Moreover, knowing that the company’s policy has never permitted reducing the markup percentage in the European market and that Köning’s vice president in charge of purchasing is not in favor of purchasing any equipment that has a price of more than 20% higher than the lowest bid; subtracting the import duty from the original price of ($1’244’800) would b the first step in reducing the initial price to $1’091’200. The value is 4.1% higher then $1’046’400, what would be the exact ‘maximum price’ mentioned by Köning’s official. If we do not take into consideration the potential for cost reduction from reduced transportation costs in order to make up for the loss in ‘before tax
Q1: How far does Zimmermann have to cut the price to have a chance?
The cost of a 1000X computer for the European market usually consists of the cost to manufacture ($768’000), the overheads, a markup of 33 1/3% ($256’000) that includes the profit, research and development and selling expenses; in addition to these components, there are transportation and installation costs ($67’200) and finally the import duty ($153’600). Computron Inc. has previously assembled and manufactured its products in the US and shipped ready goods to Europe, thus having to raise the original US price in order to cover the expenses of the last component of the price, the import duty. Given that the company has made a strategic decision to build a factory in Frankfurt that would cover the assembling and manufacturing services for the European market, that consists of 15 countries, and given that the opening of this newly constructed facility is the 15th of September 2006; it is valid to assume that the manufacturing and assembly of the 1000X computer for Köning & Cie, AG, if the order is made, would take place at the local facility in Germany, rather than in the US. This factor eliminates the expenses related to import duty ($ 153’600) as well as significantly reduces the transportation costs. Moreover, knowing that the company’s policy has never permitted reducing the markup percentage in the European market and that Köning’s vice president in charge of purchasing is not in favor of purchasing any equipment that has a price of more than 20% higher than the lowest bid; subtracting the import duty from the original price of ($1’244’800) would b the first step in reducing the initial price to $1’091’200. The value is 4.1% higher then $1’046’400, what would be the exact ‘maximum price’ mentioned by Köning’s official. If we do not take into consideration the potential for cost reduction from reduced transportation costs in order to make up for the loss in ‘before tax