Berkshire Threaded Fasteners

Berkshire is one of many companies that produces threaded fasteners. It produces three different series of product lines. Industry leader is Bosworth Machining. The president of the company is young and new to the business and hired a manager with more experience in order to assist him. The demand for fasteners is neutral if not even on the downturn. Bosworth recently announced as price cut on one line of fasteners that is equivalent to Berkshire’s 100 series. The price reduction will make it non-profitable for Berkshire to match and brings up the question of which product line to drop.

1. If the company had dropped the 300 series as of January 1, 1974, the profit for the first six months of 1974 would have decreased by $512,000. The sales would have reduced by $1,355 and the variable costs would be reduced by $773,000 associated to the 300 series fasteners. Fixed costs would have remained the same, but the remaining 2 products would have larger allocation of fixed costs among themselves.

2. Berkshire’s estimate is that if they hold the price at $2.45 would be sales of 750,000 units, the revenue would be $1,838,000. If they reduce the price, they are anticipating sales of 1,000,000 units generating revenue of $2,250,000. Based on this, in July 1974 the company should reduce the price of the 100 series from $2.45 to $2.25. They would sell more of their 100 series than any of the other series. Bosworth has already have the price cut on this series and to be competitive in the market Berkshire should reduce the price of 100 series otherwise it will lose the market share in the business.

3. Berkshire’s most profitable product line is the 100 series. It costs them about 1.68 to produce 100 units and they sell 100 units for 2.45. This is a .73 per hundred unit contribution margin. Even if you include the fixed costs,