Cumberland should set their selling price, to distributors, between $115.50 and $138.36 to realize a 40%-50% contribution margin after all manufacturing costs are incurred.
Distributors selling price to end customers (using %40 margin when bought at $138.36 from Cumberland).
$230.60 - $138.36 = $92.94/$230.60 = 40% margin.
A distributor being charged $138.36 from Cumberland for a pad should charge $230.60 to realize a 40% margin).
Table 2 uses the second test results from the case and compares them to the costs of using Cumberland's pads (using results from Table 1). Table two shows that there is a substantial saving realized by using Cumberland's new pads. This shows that Cumberland could charge a higher price for their product because it reduces the time spent on each job and the number of pads used for each job.
Table 2.
Using second test results from case & costs from table 1 .
Curled metal pads Asbestos pads.
Cost of set to end customer 5 pads x $230.60/pad = $1153 $40/set x 50 sets = $2,000.
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Time to drive piles 12,000ft / 200ft per hr = 60 hours 12,000ft / 160 ft per hr = 75 hrs.
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Time required for changes 1 change x 4 min = .067 hrs 50 changesx20 min=1,000min (16.66hrs).
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Total time and cost 60.067hrs and $1153 91.66hrs and $2,000.
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Total saving from using pads: 31.6 hours and $847 .
Total savings on job using new pads: (using sum of average cost per hour $238 from Table A in case).
$238/hr x 31.6hrs = $7,521 + $847 = $8,368 .
Saving per pad used: .
$8,368 / 5 pads used on job = $1,673.60 .
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The second major problem that Cumberland faced was how they were going to market their product successfully when most of the industry did not know about their new product. Using a push marketing strategy would not work for the pads because the industry does not realize that they need this product. The best marketing strategy to use for this product would be a pull strategy. The case lists six channels that Cumberland could possibly market through.