Computron Case Write Up

Computron Case Write Up

1. Problem Statement

Computron has decided they want to enter a bid to sell the 1000X Digital Computer to König International. Computron's corporate headquarters wishing to maintain their profit margin and image of a quality products, wants to use the typical 33 1/3% mark-up, producing a bid of $1,244,800. A competitor is rumoured to be submitting a bid around $872,000, the highest bid König will allow is 20% higher than a competitors lowest bid, or $1,046,400. The problem contains two issues: what is the range of bids possibly submitted by the other companies; how can Corporate Headquarters be persuaded into accepting the lower bid. Computron has already built a factory capable of producing assembly of computers; in order to get the factory running and have work in it for at least a couple months it is necessary for the firm to win the contract. Securing König Int'l would also give Computron the ability to compete with other companies in the European market.

2. Alternative Solutions- for the bids

a) $ 1,244,800 à 331/3 % Mark-up

b) $ 1,046,400 à 20% from lowest given bid

c) $ 950, 400 à Lowest possible bid

3. Evaluations of Alternative Solutions

a) $1,244,800

The advantages of this bid all come from the fact that it is in line with what management wants to do. While the bid is on the high side it contains the 33 1/3 % mark-up that is Computron's standard pricing policy. Regardless if Computron wins the bid, Zimmerman is safe. He would be allowed him to keep his job because he has followed corporate policy and shows he follows instructions.

The biggest problem with this bid is that the bid does not compete with other firms' bids and it won't win. It is a waste of time and money submitting a bid that wouldn't even be considered. Not submitting a winning bid would keep the new plant from operating for the first couple months.

b) $ 1,046,400

This bid is the 20% increase from the rumored bid of $872,000 by Ruhr Maschinenfabrik, AG. This bid seems to be the best choice at first glance. It is within the 20% of the lowest bidder guideline and has a chance at winning because of this, even though the markup is under 33 1/3%. The actually mark up is .08375.

Factory cost- $768,000

M.U- .08375 $64,320

Total $832,320

Import duty- $124,848

Transp., Instal. $67,200

Total $1,046,400

This bid has two major disadvantages to it: first is that the Corporate headquarters will be upset with the low mark-up. Second is that this may not be the lowest bid. Since we do not know for sure what any of the other competing companies are bidding, with the possibility of one company bidding as low as $622,400. There is no guarantee that we are bidding the lowest bid for König therefore this probably not be the best solution.

c) $ 950, 400

This solution is a price= cost solution.

Factory cost- $768,000