Reichard Maschinen: Teaching Commentary

OVERVIEW

This case deals with embody analysis for assessing the economics of a increase transition facing Reichard Maschinen, but it also involves the broader spectrum of business issues related to the transition. At one level, the economics of the situation need to be brought into focus; fixed costs, marginal costs, and sunk costs must(prenominal) be separated and evaluated for their relevance to the decision. At another level, when the merchandise and manufacturing issues are considered, the complexity of the decision becomes apparent. Financial signals asseverate that trade name rings are more profitable; marketing signals say that the future belongs to plastic rings; manufacturing signals say we should perhaps bribe rather than make. The main dilemma of the case is How long butt the firm stay with the substantially more profitable, but technologically obsolete, steel rings while still holding to its schema of being a top quality producer at a fair price?

The case is a precise good social classroom vehicle for illustrating several different layers of sophism in terms of germane(predicate) cost analysis. The following issues and concepts are likely to arise during classroom discussion.

1. The concept of eliminating applied fixed overhead in a short run, relevant cost analysis.

2. The concept of sunk costs in a relevant cost analysis.

3. The concept of the product substitution aspects of contribution analysis.

4.



The intent of the above analysis as a numerical model for a partial view of the pricing decision.

This case teaches very(prenominal) well early in the required managerial account statement course in the first year of the MBA program. This case send away be comprehensively covered in one 90-minute class period.

This teaching commentary was prepared by Professor thaumaturgy K. Shank of the Amos Tuck School of Business. This teaching note includes ideas and insights from old teaching notes by Ed...

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