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The major ineffective cost allocation systems in Robert¶s estimated cost per square foot
(sqf) is treating some cost that @


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r Fixed
cost/sqf will decrease along with the numbers of glass producedr
Those costs are:
‡ Shipping Costr AGW has its own fleet, then the major cost will be depreciation (fuel is
considered as less major) and the depreciation is considered as Fixed Cost
‡ General Overheadr Overhead in nature should be Fixed Cost instead of Variable to Labor
costr
‡ Selling and Admin Costr AGW sales staffs are salaried employees instead of contractualr
So the cost will remain fixed in naturer

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Based on our recalculation of sqf cost (treating these 3 costs as Variable Cost), AGW not
only can reduce their price  @



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Please see our recalculation in the next spreadsheetr
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We assume that the total fixed cost of each of three cost from the production level of 150,000 sqf multiplied by
the original cost per unit at Robert¶s initial assumption
þ Total Shipping Cost is USD 16r500 (0r11*150r000)
þ Total General Overhead Cost is USD 12r000 (0r08*150r000)
þ Total Selling and Admin Cost is USD 108r000 (0r 2*150r000)


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Based on our analysis on the competitors¶s reaction on AGW price

movements (on the table above), noted that competitors will have
probability of 62r50% in order to match their price with AGW and
3 r50% probability to remain with their current pricer
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@r Further, AGW need not to worry
if the competitor reduce their price since AGW still have room for price
reduction until USD 1r 6/sqf with the assumption of Break Even Point
and production of 325,000 sqf
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