Classic Pen Company: Developing an Abc Model

ANALYSIS Background Information The Classic Pen Company was a low-cost producer of traditional BLUE and black-market pens with profit margins oer 20% of sales. They then introduced RED pens at a 3% premium, and a year later they introduced PURPLE pens due to the 10% premium that they could command. However, they were defeated with the most recent year RED and PURPLE pens were non manner of speaking in expected sales (still considering their higher profit margin), and BLUE and blue pens profitability was down.Issue(s) Identification There are two main issues within this case -Profitability -Pricing ?Which involves Production time and effort per unit. -Should they introduce even more variety? Can they keep up with demand and competition? Recommendations 1. aspire rid of RED pens They are the trickiest to make their revenue is tho $. 03 more than standard pens. 2. Lower the Price for BLACK pens, since they are the most uncomplicated to make and require less smash-up and dir ect labour. . Lower cost of BLUE pens- they are the most popular, but with the changing market prices must(prenominal) be adjustable. 4. Invest in new equipment (Therefore eliminating time to clean vats in order to make new coloured pens). 5. Focus in only making BLUE and BLACK pens as specialty pens Conclusion My recommendation to Dempsey would be to invest in new technology to lower the overhead costs (Set-ups, runs) in the future. With a competitive market it is important to adapt.The asset of new colours is crucial to their survival, but with the current machinery it may not be possible. New equipment would mean limited backlog (if any), more options in colour, and meeting customers demands. If investment of new machinery is not doable for the company, it would be stovepipe to try and discern cost, and focus on standard pens for future investments. BLACK and BLUE pens bring in the most sales volumes and they could potentially cut back to 200% overhead once again.