The rear-view mirror market is currently very weak because of the slumping automobile industry. This led Gasp inc. management to reduce the price of rear-view mirrors from $40 to $30 (see Appendix 2 for the costs and revenues linked to production of rear-view mirrors). At first, all of the glass plates were used to produce mirrors for rear-view mirrors. However, in recent years, the general mirror market developed. Other businesses bought mirrors to produce all types of mirrors intended for various markets. Since this market emerged, the division has been rethinking its decision to produce rear-view mirrors. Because the mirror market is still strong, the dilemma of selling mirrors or transforming them resurfaced. Appendix 3 presents the costs and revenues linked to production of mirrors (one mirror can be used to make 4 rear-view mirrors). The sales director thinks the plant should stop producing rear-view mirrors. One good reason is that the sale of each rear-view mirror incurs a loss of $2.50 while one mirror could generate a profit of $4 (proportionally). However, the director of the production department is worried about having to shut down much of the plant. He argues that the Gasp inc. division specializes in rear-view mirrors and not in mirrors in general. As a result, it should concentrate its efforts on what it does best. He even suggested that lowering the price of 3 rear-view mirrors may make the division more competitive. Because of the nature of the production process, almost all of the indirect production costs are fixed. They would not vary even if the rear-view mirror line were discontinued. The indirect costs of all the products correspond to 150% of the cost of direct labour.

Appendix 1: Gaspe Inc. Plant: Costs and Revenue linked to rear-view mirrors

Selling Price		30
Total Raw Materials		18
Mirrors (Raw Material)	16
Other Raw Material	2
Direct Labor	5,8
Indirect production costs	8,7
Gross Profit		-2,5

Appendix 2: Gaspe Inc. Plant: Costs and Revenue linked to manufacturing mirrors

Selling Price		80
Total Raw Materials		28
Direct labor	14,4
Indirect production costs	21,6
Gross Profit		16

Question 1: Should we transform mirrirs into rear-view mirrors?

Question 2: What would be the minimum selling price for rear-view mirrors?