Question

Jackson Pty Ltd manufactures smoked meat products in Brisbane, using processes that have been handed down from one generation of Jacksons to the next. Recently, one of the company's major high-volume-selling products, smokey, has come under intense pressure from a Perth manufacturer that uses modern manufacturing processes. Jackson smokey sells for $7 per 500-gram stick, based on a cost-plus pricing system. (The company applies manufacturing overhead using a plantwide overhead rate based on the number of direct labour hours worked. Prices are based on absorption cost plus a 40 per cent markup.) The Perth competitor sells its smokey for $5.50 per 500-gram stick. The owner and manager of Jackson, Francis Jackson, is not particularly worried about the problem, but his wife Claire, the marketing manager, is concerned.

Question:

Suggest some reasons why the Perth company may be able to sell its smokey at $5.50 over the longer term.

Answer 1