Explore BrainMass
Share

Price Quotes and Pricing Decisions Applied Problems

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Your company, Bright Paints, is one of a dozen companies manufacturing a special reflective paint used for traffic signs. The State Department of Transportation has called for tenders to supply 10,000 gallons of blue reflective paint to be delivered within two months. You can foresee fitting in a production run of the blue paint and have decided to bid on the job. You calculate your incremental costs for this job to be $76,200. This particular contract is standard, similar in all in respects to hundreds of contracts you have bid on over the past few years. Your pricing policy has been to apply a mark-up to incremental costs to arrive at the bid price. Your mark-up has been higher when you had plenty of orders and lower when you had few or no orders to fulfill. You have assembled data relating the mark-up rate used and the percentage of contracts won at each mark-up rate, as follows.

SEE ATTACHMENT FOR DATA

a. Why would your company have bid with a zero mark-up on some past tenders? Why didn't it win all of those contracts?
b. What is the bid price that maximizes the expected contribution of the contract?
c. Why, or why not, is the fixed-price mode of bidding likely to be the best one to use for this contract?

2. In calculating the incremental cost of a particular project, how would you treat the possible future costs of a lawsuit that may occur as a result of this project, where the cost of the lawsuit might range from $10,000 to $500,000 with an associated probability distribution?

© BrainMass Inc. brainmass.com October 25, 2018, 8:06 am ad1c9bdddf
https://brainmass.com/economics/contracts/price-quotes-pricing-decisions-applied-problems-526580

Attachments

Solution Preview

a. Why would your company have bid with a zero mark-up on some past tenders? Why didn't it win all of those contracts?

In determining the bid price, the firm may have assessed whether it would be generating a profit or not. In certain cases, the firm may not be generating profit, on a particular bid, but its other income lines would be able to bear the additional incremental cost associated with the bid with a zero mark-up. The bid would have been undertaken to achieve other objectives that are not concerned with ...

Solution Summary

The price quotes and pricing decisions for applied problems.

$2.19
See Also This Related BrainMass Solution

Planning & Budgeting: influence the law has on pricing decisions; value of DCF methods

Managers should base pricing decisions on both cost and market factors. In addition, they must also consider legal issues. Describe the .

"It is impossible to use DCF methods for evaluating investments in research and development. There are no cost savings to measure, and we don't even know what products might come out of our R&D activities." This is a quote from an R&D manager who was asked to justify investment in a major research project based on its expected net present value. How would you respond to this statement? Do you agree or disagree? Explain.

View Full Posting Details