John Whalen is planning to introduce drill bit he developed for water drilling. The field trial at
Question:
John Whalen is planning to introduce drill bit he developed for water drilling. The field trial at BB Water Works showed that the new drill bit is 30% more efficient compared to current drill bit used. The test job was a 9000 feet and the new drill bit drilled 200 feet per hour compared to 150 feet by the old drill bit. In addition, previous drill bits had to be replaced every 500 feet requiring about 18 changes whereas Whalen's drill bits lasted 1000 feet thus requiring only 9 changes for the job.
(Below New on left, old on right)
Length in feet drilled per hour 150 200
Number of drill bits 18 9
Number of changes required 18 9
Time in minutes for changing the drill bit per drill bit 15 20
Drilling rigs are expensive systems and often are rented by the hour by drilling contractors and water companies. BB Water works rents drilling rigs at $250 per hour. Skilled labor for operating the rigs is $35 per hour plus benefits estimated at 40% of the labor costs. There are several manufacturers of drill bits and the market is very competitive with drill bits selling at $150 per drill bit.
Whalen leases a manufacturing facility and machinery with a maximum capacity of 250 drill bits per month. The monthly lease rent is $5000. Each drill bit requires $110 of material and 45 minutes of labor. Skilled labor to work with industrial diamonds used in the bits is cost $90 per hour plus benefits at 40% of the labor rate.
Research estimates that 10,000 bore wells are drilled every year in the USA and estimate that the market will grow in the future, especially in US West Coast. They believe that about 50% of these wells are in the drier parts of USWC (CA, AZ) where the drilling depth may have to reach 12,000 instead of the standard 9,000 feet before hitting water
a. Estimate the annual total market size for the new drill bits (number of units) in the USA.
b. Calculate the breakeven volume in units at different price levels (e.g. $400, $500, $600, $1,000) for Whalen's firm.
c. Calculate the price range Whalen can charge per unit (minimum -maximum) for 9000 feet well project.
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr