Lille Tissages, SABackgroundLille Tissages, SA was one of the largest companies in the textile industry based in Lille, France. Its sales in 2003 had exceeded 96 million Swiss francs, of which 2.6% were of the Article 345. The Article 345 was one of the most successful products. In its best years, from 1998 to 2001, they had a market share for voice 345 of 35%. In 2002 the market share fell to 30%, and then continued to decline in 2003 to 20%. See Annex 1. This is believed to have been caused by Lille Tissages, SA increasing the price of Article 345 from FF 15.00/m to FF 20.00/m in 2002, while competitors kept the price at 15 ,00 FF/tu. The reason for the price increase in 2002 was the need to bring the profit per meter to that of the other items in the line. Although the company was in a strong financial position, it would need considerable capital over the next few years to finance a recently approved long-term modernization and expansion program.1 Faced with stiff competition, senior management had to reconsider its prices for item 345. So in early 2004 they met to decide which direction to take. A reasonable forecast of industry volume for 2004 was 700,000 meters. The sales director proposed that if the company reduced the price of Item 345 to FF15.00/m, they would be able to increase sales to 175,000 units (or 25% of the industry volume). But if they kept the price at the current value of FF 20.00/m, they could sell no less than 75,000 units (or 11% of the industry volume).Questions1. Should Lille Tissages, SA lower the price to FF15.00/m? (Assume that no intermediate prices are taken into account.)2. If the department producing Item 345 was a profit center and you were the manager of that department, would it be a financial benefit to you to lower the price? Is there a possibility that competitors will increase prices if LilleTissages, SA maintains its price of FF 20.00/m? If so, how do you consider this fact in your analysis? At FF15.00, will Lille Tissages, SA make a profit on item 345? How to decide?Question 1Should Lille Tissages, SA lower the price to FF15.00/m? (We assume that no intermediate prices are taken into account.) To determine whether Lille Tissages, SA should lower the price to FF 15.00/m or not, we need to consider the variable costs and the contribution margin associated with item 345. Variable costs : “Variable costs are costs that vary with the volume of activity”2 and are: direct labor, materials, deterioration of materials and direct department expenses.