Scenario

Appliances Company is manufacturing different types of electronic appliances. The company is continuously reviewing its product range and the research and development team is working on enhancing the existing products and also developing the new models to satisfy the customers demand.

The company intends to always have a product at each stage of product life cycle so that company is continuously present in the market. Company is currently reviewing two products:

Product NW is currently being tested and is being launched in 10 weeks time. It is new product and company believes that it will change the whole electronic market. The company has decided to use a market skimming approach to price this product during the introduction stage.

The research team has spent time for the development of a new Product XL and trying to establish a suitable selling price. In the previous years Company has used Cost + 15% to set the selling price.

The following standard cost card is available for product XL:

Direct material: R.O.

Material 1 4kg at OMR 6 per kg 24

Material 2 2 Kg at OMR 3.5 per Kg 7

Direct labour 3 hours at OMR 4 per hour 12

Fixed Overheads 3 hours at OMR 2.5 per hour 7.5

Required:

1. Identify two different cost-Plus pricing methods that could be used to decide the Price of product XL and explain advantage and disadvantage of each method.

2. Using the above standard cost data calculate two different selling prices of product XL using the identified methods in question 1.

3. Compare and Contrast penetration and skimming pricing strategies during the introduction stage using product NW to illustrate your answer.

4. Explain the reasons for each of the remaining stages ( Growth , Maturity and decline) of NWs product life cycle and changes that would be expected in :

i) Average unit production cost

ii) Unit selling price