Berco Company manufactures and wholesales hardware supplies. One of its product lines is composed of drill bit sets and router bit sets. The company employs a calendar year for reporting purposes. The company is subject to voluntary wage and price guidelines. Bercos management is attempting to determine how much latitude is has for wage and price increase in the drill/router bit product-line and still be in compliance with the voluntary guidelines. Certain key dates and time periods as specified in the guidelines are defined below. Base Quarter Last complete fiscal quarter prior to October 2, 2000. For Berco Company this quarter runs from July 1, 2000 through September 30, 2000. Program Year 12-month period immediately following the base quarter. The program year for Berco extends from October 1, 2000 through September 30, 2004. Base Period Two-year period measured from the end of the last calendar or complete fiscal quarter of 2000 through the corresponding quarter of 2002. The base period for Berco extend from December 31, 2000 through December 31, 2002. Base Year The 12-month period prior to the program year, or October 1, 2002 through September 30, 2000, for Berco Company. The guidelines specify standards (with which Berco must comply) for wages and prices but the standards for each are not interrelated. The price standard is really a decelaration standard; i.e. the rate of the price increase instituted in the base period. Wage Standard Increases in the hourly wage rate in the program year cannot be more than 7% of the average hourly pay rate in effect in the base quarter (July 1 September 30, 2000) Price Standard The rate of price increase for a product for a product line in the program year must be lesser of (1) one-half of one percent (.5%) less than the average rate of price increase for a product line for the base period stated as an annual percentage, or (2) no more than 9.5% annually. The regulation that accompany the standards define the average rate of price increase for a product line for the base period as the eighteen average of the price increase rates of each individual product line during the base period (12/31/97 12/31/99), stated as an annual rate. The regulations specify that the average rate is to be calculated as follows: The price increase rate for the base period of each individual product in the line is to be weighted by the ratio of actual sales revenue of each individual product in the line to the actual total sales revenue of the product line as measured at the beginning of the base period. The weighted average price increase rates for the base period for all products in the product line are summed and then divided by two (base period is two-year period) to get the average annual rate of price increase for a product line for the base period. Once the allowable rate of price increase for a product line for the base period is determined (i.e. the amount calculated above less .5% or the maximum of 9.5%), the rate of price increase is shared among all products in the line according to the ratio of actual sales revenue of each individual product in the line to the total sales revenue of the product line as measured at the end of the base quarter (September 30, 2000). Historical data on wages and prices for the drill/router bit product line are given in the schedule presented below.

REQUIREMENTS:

- What is the maximum unit price increase during the program year for drill and router bits that would be allowed and still comply with the price guidelines?

- If Berco company is allowed the maximum rate of price increase of 9.5% for its drill/router bit production, and if it increases the router bit price to P16.20 during the program year. What is the maximum price of drill bits for the program year that is within the price standards?

- If Berco company is allowed the maximum rate of price increase of 9.5% for its drill/router bit production, and if it increases the router bit price to P16.20 during the program year, what will be the weighted average price increase for routers?

- To what rate can the average hourly wage be increased if it cannot be raised by more than 7% above the rate in effect in the base quarter?

- how is the current rate of price increase shares between products?

- What will be the weighted average price increase for the drill and router bits for the program year?

- What are the unit rates of price increase for drill and router bits during the base period?