Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is considering two methods of establishing a selling price for the XP-200-absorption cost-plus pricing and value-based pricing. Valmont's cost accounting system reports an absorption unit product cost for XP-200 of $9,300. Its markup percentage on absorption cost is 85%. The company's marketing managers have expressed concerns about the use of absorption cost-plus pricing because it seems to overlook the fact that the XP-200 offers superior performance relative to the comparable piece of equipment sold by Valmont's primary competitor. More specifically, the XP-200 can be used for 18,000 hours before replacement. It only requires $1,900 of preventive maintenance during its useful life and it consumes $165 of electricity per 900 hours used. These figures compare favorably to the competing piece of equipment that sells for $18,000, needs to be replaced after 9,000 hours of use, requires $3,800 of preventive maintenance during its useful life, and consumes $194 of electricity per 900 hours used. Required: 1. If Valmont uses absorption cost-plus pricing, what price will it establish for the XP-200? 2. What is XP-200's economic value to the customer (EVC) over its 18,000-hour life? 3. If Valmont uses value-based pricing, what range of possible prices should it consider when setting a price for the XP-200? Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is considering two methods of establishing a selling price for the XP-200-absorption cost-plus pricing and value-based pricing. Valmont's cost accounting system reports an absorption unit product cost for XP-200 of $9,300. Its markup percentage on absorption cost is 85%. The company's marketing managers have expressed concerns about the use of absorption cost-plus pricing because it seems to overlook the fact that the XP-200 offers superior performance relative to the comparable piece of equipment sold by Valmont's primary competitor. More specifically, the XP-200 can be used for 18,000 hours before replacement. It only requires $1,900 of preventive maintenance during its useful life and it consumes $165 of electricity per 900 hours used. These figures compare favorably to the competing piece of equipment that sells for $18,000, needs to be replaced after 9,000 hours of use, requires $3,800 of preventive maintenance during its useful life, and consumes $194 of electricity per 900 hours used. Required: 1. If Valmont uses absorption cost-plus pricing, what price will it establish for the XP-200? 2. What is XP-200's economic value to the customer (EVC) over its 18,000-hour life? 3. If Valmont uses value-based pricing, what range of possible prices should it consider when setting a price for the XP-200?
Expert Answer:
Answer rating: 100% (QA)
1 If Valmont uses absorption costplus pricing Absorption unit product cost for XP200 is 9300 Valmont... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-1259307416
16th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
Students also viewed these accounting questions
-
Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is considering two methods of establishing a selling price for the XP-200-absorption cost-plus pricing...
-
Rose Industries is currently trading for $47 per share. A one-year European call option on Rose with a strike price of $45 is currently trading for $7.45. If the risk-free interest rate is 6% per...
-
Air travel on Mountain Airlines for the past 18 weeks was: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 405 410 420 415 412 420 424 433 438 440 446 451 455 464 466 474 476 482 a. Explain why an...
-
The stockholders' equity accounts of Whispering Company have the following balances on December 31, 2025. Common stock, $10 par, 304,000 shares issued and outstanding $3,040,000 Paid-in capital in...
-
How does the sample size affect the validity of an empirical argument? When is it acceptable to use only one example to disprove a statement?
-
Briefly describe the three phases of the analog-to-digital conversion process?
-
1 The owners equity of Sean Connery is \($150,000\) and is equal to one-quarter the amount of total assets. What is the amount of liabilities? 2 The assets of Pierce Brosnan amount to \($60,000\) on...
-
For each of the following transactions and events, indicate the effect it will have on each of the three categories appearing in the Statement of Operations for a not-for-profit health care...
-
Using the following accounts and balances, prepare the Stockholders' Equity section of the balance sheet using Method 1 of Exhibit 8. 90,000 shares of common stock authorized, and 2,000 shares have...
-
Identify badges or certifications from the MBA program that you feel will be most useful for your career growth and explain how you will apply them. 1.) Microsoft PowerBI- Us e Advanced Calculations...
-
Apply Slack and Lewis (S/L) Operations Strategy (OS) framework and Matrix to a real-world company of your choice. The following structure is recommended. Introduce the organisation and the state of...
-
Identifying Operating and Nonrecurring Income Components Following is the The Dow Chemical Company income statement. (In millions, except per share amount) For Year Ended Net sales Cost of sales...
-
Automobile manufacturers and dealers use a variety of marketing devices to sell cars. Among these are rebates and low-cost dealer-arranged financing packages. To determine which method of reducing...
-
Company A announced a total dividend of $ 5 0 0 , 0 0 0 paid to shareholders in the upcoming quarter. Currently, the value of the equity shares is $ 5 5 0 , 0 0 0 and the par value is $ 0 . 4 0 . a ....
-
IAS 10 Events After the Reporting Period prescribes relevant treatment for events that occur after an entity's reporting period has ended. a) Explain what is meant by the term "Events After the...
-
Required information Exercise 1 0 - 1 3 ( Algo ) Effects of Changes in Sales, Expenses, and Assets on ROI [ LO 1 0 - 1 ] Skip to question [ The following information applies to the questions...
-
Several months have passed and the Managing Partner approved and properly filed the Complaint and properly submitted the Request for Production of Documents that you drafted. In fact, it has been 75...
-
The following extract is from Conceptual Framework for Financial Accounting and Reporting: Elements of Financial Statements and Their Measurement, FASB 3, December 1976. The benefits of achieving...
-
The following extract is from Comments of Leonard Spacek, in R.T. Sprouse and M. Moonitz, A Tentative Set of Broad Accounting Principles for Business Enterprises, Accounting Research Study No. 3,...
-
What factors should be considered in selecting an allocation base?
Study smarter with the SolutionInn App