Lille Tissage free essay sample

Consequently, the sales director is afraid that because Lille Tissage does not meet the competitive price the volume of sales will decrease significantly. This is the reason why the marketing director and the finance director of Lille Tissages, S. A have to manage today a decision about the price of Item 345 in order to prepare a joint pricing recommendation for 2004. Indeed, they have to evaluate the interest of lower the price. In order to make the best decision for the company and its shareholders they have to consider the two solutions and evaluate their interest for the company. For this consideration, they have to see what are the advantages and disadvantages of each solution. More precisely, thy have to take a look at what happen to the variable costs and the contribution margin. Question 1 : Should Lille Tissages change the price from FF20 to FF15? In order to answer to this question, the marketing director and the finance director need to consider the variable costs and the contribution margin for the two solution for the price of item 345  : FF20 and FF15 and analyze the advantage and disadvantage of each one. We will write a custom essay sample on Lille Tissage or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The question is what effect will have the change of price? Changing the price will affect the contribution margin (sale price – variable cost). To remind the variable cost is â€Å"is the sum of  marginal costs  over all units produced† which in this case are: the direct labor, the material and material spoilage and the Direct department expense. (see Exhibit 1) A keep the price at FF20 per meter with 75  000 meters sold. However, the expectation of sales for 2004 with the change of price would be 175  000 meters. Regarding the collected information, Lille Tissages, S. A should reduce the price of item 345 from FF20 to FF15 per meter. Indeed, the forecast of sales is better and the contribution margin is more profitable. Moreover, we know that Lille Tissages S. A has a competitive advantage on item 345, the reduction of the price should lead to an increase of the sales and market shares.