7 Pages Posted: 1 Jun 2017
This case examines Vesta Corporation's bidding procedures for contracts to produce expanded polystyrene packaging materials. One of the important uncertainties in the bidding process is the amount of machine time each job would require. Historical data are provided to allow an analysis of the relationship among machine times and the physical characteristics of the job. Students are asked to bid on 10 potential new jobs.
Rev. Mar. 27, 2013
The gloomy sky as he drove home from his office reminded Wilbur Warner of his problem. Recently promoted to vice president of sales for VESTA Corporation, he was responsible for securing contracts that were awarded on a bid basis. In the past, a simple method of estimating costs had been sufficient to guarantee a satisfactory return on all items his company produced under contract, but recently improper pricing of his company's products had been having a serious effect on profitability. A more accurate method for estimating production costs was quickly becoming essential for competitive and profitable pricing.
VESTA produced expanded polystyrene (EPS) shapes for a wide variety of customers. Expanded polystyrene was a moldable plastic material first commercialized in the mid-l950s. In its raw form, beads of EPS resembled small grains of white sand. When subjected to high-pressure steam, the beads expanded up to 50 times their original size and fused together. The expansion and fusion was conducted in specially made molds or “steam chests.”
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Keywords: bargaining/bidding, pricing, relevant costs, uncertainty
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