advertising services company (asco), a wholly owned subsidiary o
advertising services company (asco), a wholly owned subsidiary of bell-of-the-south tele-communications, inc. (bost), specializes in providing published and online advertising services for the business marketplace. the company monitors its costs based on the cost per column inch of published space printed in the advertising book ("the peach pages") and based on the cost per minute of telephone advertising time delivered on "the peach line," a computer-based, online advertising service. asco has one major competitor, atlantatec, in the teleadvertising market; with increased competition, asco has seen a decline in sales of online advertising in recent years. asco's president, andrea remington, believes that predatory pricing by atlantatec has caused the problem. the following is a recent conversation between andrea and jim tate, director of marketing for asco.jim: i just received a call from one of our major customers concerning our advertising rates on "the peach line" who said that a sales rep from another firm (it had to be atlantatec) had offered the same service at $1 per minute, which is $1.50 per minute less than our price. andrea: it's costing about $1.27 per minute to produce that product. i don't see how they can afford to sell it so cheaply. i'm not convinced that we should meet the price. perhaps the better strategy is to emphasize producing and selling more published ads, which we're more experienced with and where our margins are high and we have virtually no competition. jim: you may be right. based on a recent survey of our customers, i think we can raise the price significantly for published advertising and still not lose business.andrea: that sounds promising; however, before we make a major recommitment to publishing, let's explore other possible explanations. i want to know how our costs compare with our competitors. maybe we could be more efficient and find a way to earn a good return on teleadvertising.after this meeting, andrea and jim requested an investigation of production costs and comparative efficiency of producing published versus online advertising services. the controller, joanna turner, indicated that asco's efficiency was comparable to that of its competitors and prepared the following cost data:upon examining the data, andrea decided that she wanted to know more about the overhead costs since they were such a high proportion of total production costs. she was provided the following list of overhead costs and told that they were currently being assigned to products in proportion to direct labor costs.selling costs ………………………………. $7,500,000visual and audio design costs ……………. 3,000,000creative services costs ……………………. 5,000,000customer service costs ……………………. 2,000,000requiredusing the data provided by the controller, prepare analyses to help andrea and jim in making their decisions. should asco switch from the fast-growing, online advertising market back into the well-established published advertising market? does the charge of predatory pricing seem valid? why are customers likely to be willing to pay a higher price to get published services? do traditional costing and activity-based costing lead to the same conclusions?
Price Type: Negotiable
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