Pet Designs makes various accessories for pets. Their  trademark product, PetBed, is perceived to be high quality but not extravagant, and is sold in a variety of  pet stores. Wanda Foster, marketing manager, has convinced her boss that they are missing an important segment of the market. “We can increase the quality of the material and design and market PetBed to a  higher-end clientele,” Wanda claims. “We won’t compete with our existing product. It’s win-win!”

PetBeds sell for $60 each. Wanda estimates the gross margin at $20. After working with production  engineers and the marketing research team, Wanda has designed a bed that she believes the new market  segment will purchase at a price of $88. The production engineers and accountants believe it will cost  about $60 to make. 

Required

a. If Pet Designs uses cost-plus pricing and prices most products like the original PetBed, what should  be the price of the high-end PetBed?

b. If Pet Designs wants to preserve the existing gross margin percentage, what is the target cost at a  market price of $72?

c. Based on your answers to (a) and (b), what are Pet Designs’ alternatives?