Dominion Motors Essay

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Reduce price of 10HP motor to that of 7.5HP: 1. Cost of 10HP motor is $908, but price drops from $1,580 to $1,200, so profit is reduced from $672 per motor to $292 per motor. Effectively this is a margin reduction of 42.5% at full price to 24.3% margin at the discounted price. 2. Customer purchases motor for $1,200. Then over 5 years or 60 mos usage costs are: 60*$200 = $12,000. Total cost is $13,200. Reengineer the 7.5hp for better starting torque: 1. Costs would include reengineering research and development, plus higher component costs since more advanced parts would be needed for more torque. The manufacturing cost would now be $790 for the hot version and $867 for the larger frame same temperature version. These redesigns add to manufacturing costs and would be dilutive to the current margins and earnings. Margins would decline from $536 per motor to $410 or $333 with the respective redesign options. 2. Assuming retail price is still the same, customer would pay $1,200 plus usage costs of 60*$161.25 = $9,675 amounting to a total of $10,875 spent over each motors lifetime Design a higher torque 5HP motor: 1. Research and development of this motor would be time consuming (5mos) and costly ($75,000 investment in engineering and testing). DMC currently has a high margin 5HP motor, costs are only 50% of resale price. This new specific purpose design with higher torque will also cost much more to manufacture, approx $665 per motor. It will be priced at $1045, leaving a smaller margin than any other motor DMC manufactures. 2. Assuming same retail price, customer would pay $1,045 plus usage costs of 60*$125 = $7,500 so grand total of $8,545 over 5 years. Persuade Bridges that test results are weighted too heavily on starting torque: 1. This option does not impact current motor costs. There may be a cost associated with doing additional research

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