Peter Schuliz I'v'. president of Schuliz Quality Furniture, takes pride in canying on a tradition of manufacturing custom quality furniture. a skill thatwas started by his great-grandfather in southern Germany almost 1m] years ago. In the 193i}. Peter's grandfather immigrated to the Unites States and settled in Pennsylvania where he incorporated the furniture business. Throughout its existence. the company has focused on the high end of the furniture line and remained relatively small. They were not interested in getting into the mass production of lesser quality items. Their workmanship and quality of product have attracted a loyal following of customers and clients who are willing to pay a premium for Schuliz furnishings. Over the years. Schultz has changed theirfocus and emphasis to meet changing consumer preferences and desires. however. some of the original designs are still being manufactured in certain pieces. 1iI'lI'hile the core business has remained strong and fairly consistent. the company will sometimes venture off into some other markets and specialties. Just two years ago. Peter Schuliz i'v' purchased the controlling interest in Garden Patios Deluxe. This is a small company which specialized in making high-end patio and outdoor garden type furniture. The furniture is sturdy. rust resistant and uses quality materiais which resist weathering and fading for a number of years. Peter thought this line of furniture would be a good compliment to his company since Garden Patios Deluxe concentrate on the superior quality furniture. have a relatively small operationr and support a loyal customer base. Also. with the general trend of the population now entertaining more and enjoying the outdoors. there seemed to be a sustainable market for patio furniture of this type. So far. the operation of Garden Patios Deluxe has been a success. The company is bringing in a prot. but it has been a little harder to attract a market than Peterfirst imagined. The northern climate can tend to limit the outdoor season. and it seemed that people did not want to pay a lot of money for patio furniture that would have to be in storage for half the year. As a matter ofcourse. Peter likes to review the manufacturing process for the different furniture lines about every eighteen months. He was interested in getting a detailed breakdown on the production cost and methods used to make the patio tables and chairs. The material is a specially developed compound of structurally sound polymers. which is melded and heat treated by a supplier. The compound comes in four basic colors of beige. forest green. gray and white. The furniture pieces are constructed at the Garden Patios plant and parts like the fabric seats. glass inlays. and other decorative features are assembled. The plant used in this manufacturing capacity is operating at about time of capacity. although there are some seasonal uctuations. The busy season is fmm Novemberthrough May prior to the outdoor entertainment season. in the summer. much time is spent in redesign and testing of new models or experimenting on 1.irariations in existing product lines. One of the most popular pieces made by Garden Patios Deluxe is a simple armchair. The chair has a molded frame that comes in about 4 pieces along with a contoured fabric seat. The chairs can be retailed in a set with a table or sold separately: They are extremely comfortable and lightweight. Peter wanted to know the actual cost of manufacturing a single chair. The following unit cost are identified. The total costs are based on a normal annual 1urolume of 4o.ooo chairs. The current selling price of the chairs is $?5 each. Item Costs/Unit Costs/Unit Total Costs Matenals Main Frame 9.00 5360.000 Chair Arm 2 @ $1 75 = 3.50 140,000 Stand 4.50 180,000 Fabric Seat and Back 5.00 200,000 Related Supplies 2.00 80,000 Total Materials $24.00 960.000 Labor Fabric Labor 30 min @ $10 = 5.00 200,000 Assembly Labor 20 min @ $12 = 4.00 160,000 Total Labor 9.00 360.000 Fixed Overhead Manufacturing 150% of Labor = 13.50 540,000 Administrative 25% of Material = 6.00 240,000 Total Fixed Overhead 19.50 780,000 Total Manufacturing Cost 552.50 $2,100.0005. The marketing manager believes that the customer base for chairs is pretty strong and that a price increase to 38D per chair wo uid only reduce demand by ADM) chairs. Should Schuliz implement a price increase? If the actual mice per chairwere increased to $13!]. how Far could the annual demand for chairs decline before Schultz wouId be indifferent between the $?5 price and the $30 price