Decision Level 1

Situation

Congratulations! You and your friends have just been hired to manage a new business that sells custom caps. The company buys plain “baseball” style caps in wholesale lots, customizes the caps by printing a logo, slogan, name, or other message on the caps, and then sells them one at a time.

Other companies in the same business buy caps from the same suppliers, advertise their caps, and have similar production costs and other expenses. As your company begins competing in the custom cap business, your success as managers will depend on your ability to find the right price for your caps. If the price is too high, few people will buy your caps. But if the price is too low, you may not be able to cover expenses such as rent, production costs, and advertising. You also need to consider what your competitors are going to charge and if you want your price to be above or below theirs.

Your accountant just brought you your first “Company Report.” Let’s see what information is available to help make the first management decision —- PRICE.

Calculation

Your accountant just brought you your first Company Report. What information is available to help you decide what price to charge for your caps?

1. What was your company’s price last week?
2. How many caps did you purchase last week?
3. How many caps did you sell?
4. What was your revenue?
5. What is your inventory to sell this week?
6. Add the following items:	Cost of Caps
	+ Production Costs
	+ Rent
	+ Promotion
	= TOTAL COST
	+ Caps Sold
	= AVERAGE COST

Divide the TOTAL COST by the number of caps the company sold. The result is the average cost of each cap you sold.

In the future, your price should always be greater than your average cost. Why?

Decisions

Previous Period		Next Period
$8.00	Price for your caps:

Enter your decision into the computer.