Case Study: Strategic pricing of new product

ABC Limited is developing a new clothes dryer, Dry Master, that it plans to sell to coin operated laundries. Currently, the market leader is a product called Dry Well, which is sold by a competitor. The management accountant of the company is doing a market research to determine appropriate selling price for the new clothes dryer.

The management accountant gathered the following information regarding the cost of developing 400 new cloth dryer.

Variable Costs:

Manufacturing $194,000

Sales Commission $20,000

Total Variable Cost $214,000

Fixed Cost Allocated

Manufacturing $130,000

Total Fixed Cost $130,000

Total Cost $344,000

Management decided that the required markup is 30%.

Required:

1.What is the management accountant's role in setting price of a new product? (5 marks)

2.List and explain 2 different pricing strategy that the business can use. (5 marks)

3.What are some of the other factors that management need to consider while setting the price of the new cloth dryer. (5 marks)

4.Determine the selling if the company decides to use absorption cost. (2.5 marks)

5.Determine the selling if the company decides to price total variable cost. (2.5 marks)