Forner Carpet Company produced high-grade carpeting materials for use in automobiles and recreational vans. Forner's products were sold to finishers, who cut and bound the material so that it would fit perfectly in the passenger compartment or cargo area (e.g., automobile trunk) of a specific model vehicle. These finishers also made carpet floor mats. Some of these finishers were captive operations of major automobile assembly divisions, particularly those that assembled the "top of the line" cars that included high-grade carpeting; other finishers concentrated on the replacement and van customizing markets.

Questions
1. What was the relationship (if any) between the L-42 pricing decision and the company's future need for capital funds?
2. Assuming no other prices are to be considered, should Forner price L-42 at $3.95 or $4.75?
3. If Forner's competitors hold their prices at $3.95, how many square yards of L-42 would Forner need to sell at a price of $4.75 in order to earn the same profit as selling 150,000 square yards at a price of $3.95?
4. What additional information would you wish to have before making this pricing decision? (Despite the absence of this information, still answer question 2)
5. With hindsight, was the decision to raise the price in 1993 a good one?

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EXHIBIT 1 Carpet 42: Prices and Production, 1991-1993 Production Volume (square yards) Price (per square yard) Selling Season 1991-1 991-2 1992-1 1992-2 1993-1 1993-2 Industry Total Forner Carpet Competitors 192,000 181,000 Most Forner Carpet $4.75 549,000 517,500 387,000 427,500 450,000 562,500 4.75 4.75 3.95 3.95 3.95 3.95 149,500 135,000 112,500 3.95 4.75 1%-1 mns the m of 10 99- thed 10 EXHIBIT 2 Estimated Cost per Square Yard of Carpet L-42 at Various Production Volumes First Sis Months of 1994 Volume (square yards) 50,000 7,000 100,000 so.520 0.049 0.979 125,000 150,000 175,000 S0,$20 $0.520 Raw materials Materials spoilage Direct labor Department overhead 0.520 0.049 0.962 S0 S20 0.051 0.975 $0.520 0.052 0.997 0.052 1.026 0.051 0.989 0.544 0.827 0.297 3.228 Direct indirect General overhead Factory cost Selling and administrative 1.671 0.568 1.240 0.308 3.714 0.520 0.354 0.299 2.742 1453 13441276 1247 .34 0.524 0.620 0.294 2.986 0.520 0.496 0.289 0.520 0413 0.293 2.772 Total cost 55 38554.68430 12$4019$3,976 4.112 $5.385 $4.330 Matrrials handiens, applies, rig Soperviss mpuipment deprecianon hest ad ligh 45 percent acoy