An article in the Wall Street Journal gave the following explanation of how products were…
An article in the Wall Street Journal gave the following explanation of how products were traditionally priced at Parker-Hannifin Corporation:
For as long as anyone at the 89-year-old company could recall, Parker used the same simple formula to determine prices of its 800,000 parts—from heat-resistant seals for jet engines to steel valves that hoist buckets on cherry pickers. Company managers would calculate how much it cost to make and deliver each product and add a flat percentage on top, usually aiming for about 35%. Many managers liked the method because it was straightforward.
Is it likely that this system of pricing maximized the firm’s profit? Briefly explain.