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Sales and Pricing - Dover Rubber Company

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Dover Rubber Company had been offered a contract to supply 500,000 premium automobile tires to a large automobile manufacturer at a price of $41.65 per tire. Dover's full cost of producing the tire is $51.80. The normal sales price for the tire is $73.50 to both distributors and some selected retailers. Variable costs per tire amount to $34.30; however, in order to meet the needs of the auto manufacturer, Dover will have to cut its sales to regular customers by 100,000 tires annually. The automaker has clearly indicated that it will enter into the agreement only if Dover will agree to supply all 500,000 of the tires requested.

Required:
Should Dover accept the offer?

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Solution Summary

The expert examines sales and pricing for Dover Rubber Company.

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Contribution Margin per tire for the contract = 41.65 - 34.30 = $7.35

Total tires to be shipped = ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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