Q INTRO TO ENTREPRENEURSHIP Short Answer: Using Rational System 2 Waterjet Bid (1 0 pts) Below is a case study based on a real consulting job I did a few years ago. I have condensed the facts for space and time consideration. Please review the scenario. Following the listed constraints, please answer the question at the end. Case Study You are the Chief Operating Officer for a small machine shop located in Moorhead, Minnesota . The company has been in business for over 30 years. The company for the most part has been quite profitable although in recent years competition has increased and pro fits have fallen and the business is now losing money. About four years ago — in an attempt to help address this trend — the company began to offer water jet cutting services. A water jet machine uses an extremely fine sand grit mixed with water. This solutio n is shot through a nozzle at high pressure to cut various materials. The advantage of such a machine is that you can obtain a very fine edge without using heat found in a laser machine which can distort the characteristics of the material being cut. One of your sales staff has requested your input on pricing for the water jet cutting service regarding a potential new client . You have known the sales person as one who always wants to sell the best service at the lowest price rather than learn how to handle an objection. In any case, you agree to review the circumstances. One of your existing clients is the UNO company for whom you have supplied various services over the years. The UNO company is a local business that specializes in stainless steel fabricat ion of conveyor systems. Your company has been supplying water jet cutting services to UNO for the last four years at $150/hr. which is consistent with local rates. UNO has the ability to purchase their own waterjet machine but up to this point UNO has pre ferred to work with you. The second client is ECONO, a large company located in Selmer, New Jersey. You have not done business with ECONO before — thus, it would be all new business. You became aware of ECONO from a bid service that you subscribe to on a ye arly basis. You are not sure at this time if the ECONO busines s would be ongoing relationship but they are a large company. To help guide your input, you have compiled the following information: • The wate r jet machine originally cost $6 00,000 with an expe cted life of 100,000 hours. • The water jet area takes up about 8 ,000 square feet in a building with 4 0,000 square feet. • The business doe s have other act ivities occurring in the other 32, 000 square feet. • Total building costs run $27,5 00/month which include s rent, taxes, maintenance, etc. • Total wages/salary expenses for the company are $120,000/month. • Th e waterjet machine operator gets paid $18 .00/hour . • In addition, the cost of benefits for the operator come to $3/hr. • The company has a bank loan in the amount of $1.5 million at a simple annual interest rate of 5.25%. • The machine is curre ntly used about 6 hours per day on UNO business. • Water usage is minimal as all water gets recycled. • The grit, nozzles, and electricity to run the machine costs a bout $4 .00/hour. • All mat erial is supplied by the client and the client pays the freight . • If you get the ECONO job , the new clien t would use up about 2 additional hours/day of machine time. • The company’s production plant is currently open 5 days/week. • All producti on employees work one production shift of 8 h ou rs each day. Constraints Below I will ask you to submit two prices. If you have additional questions, you will need to post them in the corresponding Discussion Forum if one is made available and/or contact the instructor. The instructor can be grumpy at times --- if you don’t ask the question you don’t get the information. After reviewing the material, t ype up your answers and submit them into the corresponding Assignment Drop Box and/or bring your answers to class if directed by the instructor. 1. Please submit a new price quote for your existing customer UNO. In the past you have charged them $150/hr. Do you keep the price the same, increase the price, or decrease the price. 2. Please submit a bid for th e ECONO job. Your bid must meet the following requirements: a. Your bid must be presented on a Per Hour Basis. For example, you charge the existing client UNO $150/hour for your waterjet services. How much per hour will you charge Econo? b. Y our minimum bid cannot be less than twice your total costs on a per hour basis. You can always submit a higher bid but you cannot go lower tha n twice your total costs. As the bid needs to be on a per hour basis, you wil l need figure out the costs on a per hour basis. i. + Machine Costs/Hour: ii. + Building Costs/Hour: iii. + Salary Costs/ Hour: iv. + Operator Costs/Hour: v. + Operator Benefits/Hour: vi. + Bank Loan/Hour: vii. + Grits/Sand/Hour: viii. + Other/Hour: ix. = Total Costs: x. Multiply * 2 xi. = Minimum Bid: 3. The combination of the two prices (price quote for UNO and bid price for ECONO) must give you a reasonable assurance of your company making more money. Your instructor reserves the right to determine if y our pricing combination meets this requirement. In addition, your instructor reserves the right to reject all bids. 4. To keep you honest, please show your work/assumptions you used to derive your cost information. Some components may require you to make some assumptions and/or ask questions . S tudents will use different assumptions. There isn’t necessarily a right or wrong assumption. As long as you are thinking like an economist and following a rational method, I will be okay with it. Just share with me your rationale. 5. Ten (1 0 ) points for submitting you r price quotes/ bid and outlining your cost assumptions. 6. If you submit the lowest bid while staying within the constraints listed, I will award you a perfect score on one assignment o f your choice from Unit One or Unit Two in this course. Again, t he instructor reserves the ri ght as the final judge/jury. The in structor decision is final in determining if all pricing requirements have been met, who has submitted the lowest bid, and to reject all pricing/bids if I suspect illegal price collusion. Good Luck!

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