Submitted by: Group No.

2 Ashish Kumar Tiwari 11P187 Nidhi Bansal 11P209 Rahul Sood 11P215 Sugandha Gupta 11P230 Varun Sanghi 11P236 Vipin Aggarwal 11P238

Question 1
Relationship between L-42 pricing decisions and the companys future need for capital funds
The company needs capital funds in the future for the following activities:
For replacing its equipments To diversify

For the above activities the company has taken the decision on price hike
Price hike from $3.95 to $4.75 to increase revenue

But the move resulted in fall of market share from 35.01% to 30% (14.2%) in

the first half of 1993. And a further decrease from 30% to 20% (33.3%) in the second half of 1993. Hence, the price hike resulted in low market share and revenue

Question 2
In 1994, L-42 at $3.95 or $4.75???
150,000 sq. yards @ US$3.95 Total Cost Profit (Loss) 4.019 (10,350) 75,000 sq. yards @ US$4.75 4.681 5,175

Market Share

23.8%

14.0%

Hence L-42 should be sold at $4.75 as

Cost of production is expected to increase Also competitors may follow Forner Carpet and increase their price because of high input cost

Question 3
Quantity need to sell to earn same profit
Price=$3.95/unit

Quantity=150,000 Profit=(10350) Total Fixed cost(Indirect overhead)=$62000 Average variable cost=$3.844/square yards Average selling price=$4.75/square yards 56,758 square yards of L-42 should be sold at $4.75 per unit to earn same profit as selling 150000 sq yards at $3.95

Question 4
Additional Information Required
Loss sustaining ability of competitors

Cost of production for Forner Carpets the years 1991

1993 Cost of production of competitors for the period 1991 1994 Expected sales in 1994

Question 5
Is the decision to raise the price GOOD??
Forner Carpets is a large player in the market with a considerable

market share of approximately 35% (1992-2) Market share of the company decreased from 35% to 20% in a period of 1 year due to price hike The revenue the company would have generated in 1993-2 at US$3.95 would have been 774,322 as compared to 534,375 that it generated by selling at US$4.75 So the Decision of price hike is not good The company must sell @ US$3.95 in the year 1993 and increase its price to US$4.75 in 1994 to offset the increase in cost of production.

Thank You