8-6. Cost-Plus Pricing [LO 2] The Wendel Stove Company is developing a "profes- sional"-model stove aimed at the home market. The company estimates that variable costs will be $2,700 per unit and fixed costs will be $12,600,000 per year. REQUIRED a. Suppose the company wants to set its price equal to full cost plus 30 percent. To determine cost, the company must estimate the number of units it will produce and sell in a year. Suppose the company estimates that it can sell 6,000 units. What price will the company set? b. What is odd about setting the price based on an estimate of how many units will be sold? c. Suppose the company sets a price as in part a, but the number of units demanded at that price turns out to be 5,000. Revise the price in light of demand for 5,000 units. d. What will happen to the number of units that will be sold if the price is raised to the one you calculated in part c? e. Explain why setting price by marking up cost is inherently circular for a manufacturing firm. PROBLEM 8-4. Determining the Profit-Maximizing Price [LO 1] RoverPlus, a pet product superstore, is considering pricing a new RoverPlus-labeled dog food. The company will buy the premium dog food from a company in Indiana that packs the product with a RoverPlus label. Rover pays $9 for a 50-pound bag delivered to its store. The company also sells Royal Dog Food (under the Royal Dog Food label), which it pur- chases for $12 per 50-pound bag and sells for $20.99. The company currently sells 26,000 bags of Royal Dog Food per month, but that is expected to change when the RoverPlus brand is introduced. The company will continue to price the Royal Dog Food brand at $20.99. The quantity of RoverPlus and the quantity of Royal Dog Food that will be sold at various prices for Royal are estimated as: Problems 321 Price RoverPlus Quantity RoverPlus Quantity Royal $ 9.99 36,000 12,000 $10.99 35,500 12,300 $11.99 35,000 12,500 $12.99 34.000 13,000 $13.99 31,000 14,000 $14.99 26,000 15,000 $15.99 16,000 16,000 $16.99 11,000 20,000 $17.99 6,000 22,000 For example, if RoverPlus is priced at $9.99, the company will sell 36,000 bags of RoverPlus and 12,000 bags of Royal at $20.99. If the company prices Rover Plus at $17.99, it will sell 6,000 bags of RoverPlus and 22,000 bags of Royal at $20.99. This is 4,000 fewer bags of Royal than is currently being sold. REQUIRED a. Calculate the profit-maximizing price for the RoverPlus brand, taking into account the effect of the sales of RoverPlus on sales of the Royal Dog Food brand. b. At the price calculated in part a, what is the incremental profit over the profit earned before the introduction of the RoverPlus-branded dog food