Question & Answer: Can Eagle lower its selling price to Cherokee? Explain your answer….

Eagle Manufacturing was the supplier of engine parts to Cherokee Cycle Company, and it was a major U.S. manufacturer of motorcycles. Like all of Cherokee’s suppliers, Eagle has always added a healthy profit margin to its cost when quoting selling prices to Cherokee.But several companies were ready to offer supply engine parts to Cherokee for lower prices than Eagle has been charging.

Because Eagle Manufacturing wants to keep Cherokee Cycle Company’s business, a team of Eagle’s managers has decided to analyze heir company’s product costs and decided to make minor changes in the company’s product cost as they donot want to loose business and there was lot of compitition in the market so they finally decided to lower the selling price of its product to Cherokee and will work on low profits.