leeds works Case Study Solution
The cost of single steel blade is 3.96 and it is assumed that the sales of steel blade is four times higher than the composite blade so the cost of 4 steel blades are 15.84. The profit that the company earn by selling the single composite blade is 3.70. In order to make equal profit which the company earn by selling the 4 composite blade to profit of single composite blade, add the cost of 4 steel blades and potential profit from composite blades, we get the total revenue which the company want to earn. By dividing the total potential revenue from 4 blades that are required to be sold so the minimum cost to sell one composite blade to earn equivalent profit of selling one composite blade over 4 steel blade is 4.89. By selling the composite blade at minimum cost would give equal profit to the company. The calculation are given in exhibit-4.
Question 5
After becoming the widely available of composite based blades in the market, by using the cost estimated for Leeds Works, the equilibrium price of a composite based blades is 4.16 sterling pond which is shown in Exhibit -5 of the document. The equilibrium price of 4.16 sterling pond has been calculated by dividing the total fixed costs to the number of units to be sold within 6 months in order to find out the contribution margin (CM) in which the total variable cost has been added to get the equilibrium price of composite based blades.
Exhibit 1
| Current Cost to Make Blades | |
| Current Carbide Cost | |
| Material | £ 1.15 |
| Labor Cost | £ 0.70 |
| Overhead | £ 1.48 |
| Divisional | £ 0.63 |
| Total | £ 3.96 |
| Profit With Current Cost | |
| Current Carbide Cost | |
| Revenue | £ 5.00 |
| Cost Per Unit | £ 3.96 |
| Total Profit | £ 1.04 |
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