Bounceback - Pricing Question Safety-4-you Co. specialise in developing high-tech solutions for health and safety needs. Their latest product, the 'Bounceback' is a personal harness fitted with auto- inflating air-bags. The Bounceback is in its final stages of development and Safety-4- you has conducted market research to help determine what price to set when the product is launched. The product has an expected life of three years, following which it is anticipated that it will be replaced with a more innovative product. The directors have been reviewing recent market research conducted on the price- demand relationship. Market research conducted on similar products has identified that at a price of $560, annual demand would be 120,000 units. The research also identified that for every $5 increase in selling price, demand would fall by 5,000 units, and for every $5 decrease in selling price, demand would increase by 5,000 units. Latest forecast annual production costs which would be incurred by Safety-4-you in relation to the Bounceback are as follows: Annual Production (units) 90,000 120,000 150,000 $'000 $'000 $'000 Direct material 19,800 26,400 33,000 Labour 12,600 16,800 21,000 Overheads 9,400 11,200 14,200 Production of 125,000 units or more requires use of extra facilities resulting in an increase in fixed overheads at these levels of production. Requirements: Part a (i) Calculate the optimum selling price for the new product. (14 marks) (ii) Calculate the resulting profit for the period. (4 marks) 24 Part b Discuss two pricing strategies used by companies launching a new product to market, and explain, with reasons, which strategy is suitable for the Bounceback (7 marks) Note: If Pa-bQ then MR = a - 250 (25 marks) 25