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Paris Custom Tanks (PCT) designs and manufactures st. Connolly, the PCT general manager, classifies PCT products into three groups: s. For planning purposes John 1. 2. 3. The basic tank with small cosmetic variations Size modifications of the basic tank Fully customized tanks Although PCT sales have been increasing margins have been declining steadily-a matter of considerable concern for John. John finds this particularly perplexing since sales of the high priced fully customized tanks have occupied an increasing share of the product mix. John uses a standard pricing formula that is common in the segment of the industry that PCT occupies. The pricing formula is to set price equal to 125% of computed product cost. Since the cost of the stainless steel used in each tank is the major component of total cost, the current costing system sets each product's total cost equal to 150% of the tank's steel cost. The value chain for the tanks is as follows 1. 2. The company's basic tank has a 1,000 gallon capacity. Tank production is highly automated. A computer controls the machine that cuts sheets of stainless steel into the pieces needed to make a particular tank Then another computer controlled machine bends the steel into shape and automatically makes any needed welds. Finally any external fittings are hand welded onto the tank. a. b. c. 3. For tanks other than the basic tanks plans have to be drawn up to meet the customer's requirements. A technician then uses the PCT CAD/CAM machine to render the drawings into