31 May BUS 640 Week 5 Price Quotes and Pricing Decisions Applied Problems
1. Your organization, Bright Paints, is among a dozen organizations producing a specific reflective paint utilized for traffic signals. The State Department of Transportation has requested tenders to provide 10,000 gallons of blue reflective paint to be supplied in 2 months. You may predict fitting in a manufacturing run of the blue paint and have made a decision to quote on the work. You compute your incremental expenses for this job to be $76,200. This specific deal is standard, similar in all in ways to hundreds of agreements you have bid on during the last few years. Your pricing policy has been to apply a mark-up to incremental expenses to arrive at the bid price. Your mark-up has been more when you had lots of orders and reduced when you had very few or no orders to complete. You have gathered data pertaining the mark-up rate used as well as the share of deals got at each mark-up rate, as follows.
| Mark up rate (%) | Bid Price | Contribution | EPVC | Percent of contracts won | |
| 0 | $76,200 | 0 | 0 | 95.9 | |
| 10 | $83,820 | $7,620 | .0848 | 84.8 | |
| 15 | $87,630 | $11,430 | .0981 | 65.4 | |
| 20 | $91,440 | $15,240 | .0826 | 41.3 | |
| 25 | $95,250 | $19,050 | .0392 | 15.7 | |
| 30 | $99,060 | $22,860 | .009 | 3.0 | |
| 35 | $102,870 | $26,670 | 0 | 0 | |
a. Why would your company have bid with a zero mark-up on some past tenders? Why didn’t it win all of those contracts?
b. What is the bid price that maximizes the expected contribution of the contract
c. Why, or why not, is the fixed-price mode of bidding likely to be the best one to use for this contract?
2.In calculating the incremental cost of a particular project, how would you treat the possible future costs of a lawsuit that may occur as a result of this project, where the cost of the lawsuit might range from $10,000 to $500,000 with an associated probability distribution?
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