Chapter 9: Financial Analysis
Ace Manufacturing: Identifying True Costs for Pricing
Ace Manufacturing earns revenues of $2,100,000 annually on 150,000 unit sales of an industrial
part. The part is priced at $14 each. A potential customer, in an industry that the company has
not previously served, asks Ace to submit a bid for a similar product that Ace could produce in
the same facility using much of the same capital equipment. The new customer would purchase
30,000 units annually. After evaluating this customer’s needs and identifying the substitute
What is the relevant unit cost for making this pricing decision?
Is this business sufficiently profitable to make bidding worthwhile?
Total dollars
Dollars per unit
150,000 units
180,000 units
150,000 units
+30,000
Revenues
$2,100,000
$14.0
Costs
3
Direct fixed costs
General & admin. costs
Total costs
Profits