Printech Company prints elaborated, high-quality color brochures in its facility, located in Faisalabad, Pakistan. It primarily serves businesses in Urban Sindh, although it does have some clients in south Punjab and as far east as the Gawadar Bay. The company hires additional labor as needed to accommodate any changes in printing volume. Junaid believes that many of his costs are fixed, but that some costs vary with the number of brochures he prints and sells. Table 1 contains information related to Printech's monthly operating costs for the company's current activity level of 150,000 brochures a month. The company typically prices its printing services at an average of 17 PKR per 100 brochures printed. Historically, Junaid has encountered little variation in pricing from job to job, although occasionally special situations do arise. He wonders how he should handle those special situations. He does not have a rule of thumb he can apply, but he wishes he could find one.
Table 1: PRINTECH COMPANY (A) Summary of Monthly Operating Costs
Monthly costs at 150,000 volume
Manufacturing costs:
- Direct material (variable): 6,000
- Direct labor (variable): 1,500
- Direct labor (fixed): 3,000
- Manufacturing overhead (variable): 1,500
- Manufacturing overhead (fixed): 3,375
Total manufacturing costs: 15,375
Nonmanufacturing costs:
- Sales (variable): 1,500
- Sales (fixed): 1,875
- Corporate (fixed): 3,750
Total nonmanufacturing costs: 7,125
Total costs: 22,500 PKR
The Special Order
In her phone call, Jamila indicated that she needed a special job printed next month. She needed 25,000 brochures, concerning a new product, to distribute at three trade shows she was planning to attend. When Junaid quoted Jamila the usual price of 17 PKR per 100 brochures, she sighed. "Junaid, I know that Printech does a high-quality job, but I'm short on funds right now because I have spent so much on getting this new product up and running. I can't go any higher than 10 PKR per 100 brochures on this job. If you can't do it for that, I'll have to go to someone else. I'm sure the brochures won't look as nice, but that's all I've got to spend.
