This is a case study.

Canadian Product Corporation Limited (CPCL) is a manufacturer of small house- hold appliances. The company has only one manufacturing facility which services all of Canada. CPCL is well established and sells its products directly to department stores. CPCL wishes to begin manufacturing and marketing its newly developed cordless steam iron. In order to properly evaluate the performance of this new product, management has decided to create a new division for its production and distribution Two of CPCLS competitors have recently introduced their own brands of cordless steam irons at a price of $28 cach. CPCL usual pricing strategy for new products is full absorption cost plus a 100% markup. For the new iron, at a pro- duction and sales volume of 350,000 units per year, this strategy would imply a price of $31.50 CPCL president, Mr.T.C. Leopard, is not sure whether this pricing strategy would be appropriate for the new iron and is considering other proposals as follows: 1. Variable product cost plus a 200% markup 2. A price of S27 to undercut the competition Mr. Leopard hired a market research firm to study the likely demand for CPC cordless steam iron at the three proposed prices. The research firm con- ducted an extensive market test resulting in projected annual sales volumes over the next five years at these prices. These sales projections are summarized in Fxhibit 1-1. The research firm, however, made it clear that there were no guarantees that the market world respond according to the projections Mr. Leopard was not happy with the probabilities that the market research firm assigned to the various price/volume levels. He therefore used his own know- edge and past experience to assign different probabilities (sce Exhibit 1-2). Me Leopard then called Joan Helm, the chief financial officer, to analyze the situation and recommend a five-year pricing strategy for the new cordless steam iron. As a first step. Joan assembled some relevant data which is presented in Exhibit 1-3. REQUIRED As Joan Helm, comply with Mr. Leopard's request. Include in your analysis considera tion of both quantitative and qualitative factors in determining a five-year pricing strat cey for the new iron EXHIBIT 1-1 CPCL Market Research Data for Cardiess Steam Iron EXHIBIT 12 CPCL President's Probability Data for Cordless Steam Iron Selling Price 524.00 Volume Probability 20% Selling Price 52-0.00 SO SOCCHIO 400.00 300.000 100,000 350.0KO 250, 300,000 250,00 27.00 Probability ton 50 +0 20 10 Volume 500.000 400.000 00.000 -400,000 350.000 250.000 300,000 250.000 27.00 35 30 11.50 SO -10 SO EXHIBIT 1-3 CPCL Other Relevant Data for Cordless Steam Iron Expected costs based on annual prod of 350,000 unit Total variable costs 52.900.000 Total faed overhead Plantander Notional chinery of plant space will be requireduce the cordles miron The planetas city vible to produce 100,0%) Inventory levels Jy went will result in vially and my particular Canadian Product Corporation Limited (CPCL) is a manufacturer of small house- hold appliances. The company has only one manufacturing facility which services all of Canada. CPCL is well established and sells its products directly to department stores. CPCL wishes to begin manufacturing and marketing its newly developed cordless steam iron. In order to properly evaluate the performance of this new product, management has decided to create a new division for its production and distribution Two of CPCLA competitors have recently introduced their own brands of curdless steam irons at a price of S28 cach. CPCLS usual pricing strategy for new products is full absorption cost phs a 100% markup. For the new iron, at a pro- duction and sales volume of 350,000 units per year, this strategy would imply a price of $31.50. CPCLS president, Mr.T.C. Leopard, is not sure whether this pricing strategy would be appropriate for the new iron and is considering other proposals as follows: 1. Variable product cost plus a 200% markup 2. A price of $27 to undercut the competition Mr. Leopard hired a market research firm to study the likely demand for CPCN cordless steam iron at the three proposed prices. The research firm con duted an extensive market test resulting in projected annual sales volumes over the next five years at these prices. These sales projections are summarized in Exhibit 1-1. The research firm, however, made it clear that there were neuarantees that the market would respond according to the projections Mr. Leopard was not happy with the probabilities that the market research firm assigned to the various price/volume levels. He therefore used his own know! edge and past experience to assign different probabilities (see Fxhibu 1-2). Me Leopard then called Joan Helm, the chief financial officer, to analyze the situation and recommend a five-year pricing strategy for the new cordless steam iron. As first step. Joan assembled some relevant data which is presented in Echibit 1-3. REQUIRED As Jean Helm, comply with M. Leopard's request. Include in your analysis considera tion of both quantitative and qualitative factors in determining five-year primera egy for the new iron EXHIBIT 1-1 CPCL Market Research Data for Cordless Steam Iron EXHIBIT 12 CPCL President's Probability Data for Cordless Steam Iron Selling Price Value Probabil 52.0 400.000 Pessbability 20 50 30 25 15 30 JO 50 30 S00, 400.00 300,000 100, 350, 250C 30. 250,00) C.RO 27.0 400.000 S000 250.000 31.50 EXHIBIT 13 CPCL Other Relevant Data for Cordless Steam Iron Expected coses based on annual production of 150.000 Tocal variable costs 52.800.00 Total fused heal 2.712,500 Pantandepunt Now where plants will redhe The plantas de produse NG (SMAC) stores. Canadian Product Corporation Limited (CPCL) is a manufacturer of small house- hold appliances. The company has only one manufacturing facility which services all of Canada. CPCL is well established and sells its products directly to department CPCL wishes to begin manufacturing and marketing its newly developed cordless steam iron. In order to properly evaluate the performance of this new product, management has decided to create a new division for its production and distribution Two of CPCL's competitors have recently introduced their own brands of cordless steam irons at a price of S28 cach. CPCLs usual pricing strategy for new products is full absorption cost phas a 100% markup. For the new iron, at a pro- duction and sales volume of 350,000 units per year, this strategy would imply a price of $31.50. CPCL's president, Mr.T. C. Leopard, is not sure whether this pricing strategy would be appropriate for the new iron and is considering other proposals as follows: 1. Variable product cost plus a 200% markup 2. A price of $27 to undercut the competition Mr. Leopard hired a market research firm to study the likely demand for CPCLS cordless steam iron at the three proposed prices. The research firm con- ducted an extensive market test resulting in projected annual sales volumes over the next five years at these prices. These sales projections are summarized in Exhibit 1-1. The research firm, however, made it clear that there were no guarantees that the market would respond according to the projections. Mr. Leopard was not happy with the probabilities that the market research firm assigned to the various price/volume levels. He therefore used his own knowl- edge and past experience to assign different probabilities (see Exhibit 1-2). Mr. Leopard then called Joan Helm, the chief financial officer, to analyze the situation and recommend a five-year pricing strategy for the new cordless steam iron. As a first step, Joan assembled some relevant data which is presented in Exhibit 1-3. REQUIRED As Joan Helm, comply with Mr. Leopard's request. Include in your analysis considera- tion of both quantitative and qualitative factors in determining a five-year pricing strat- egy for the new iron Copyright 2010 Pearson Education Canada APPENDIX EXHIBIT 1-1 CPCL Market Research Data for Cordless Steam Iron EXHIBIT 1-2 CPCL President's Probability Data for Cordless Steam Iron Selling Price Volume Probability Selling Price Volume Probability $24.00 $24.00 10% 50 40 27.00 27.00 500,000 400,000 300,000 400,000 350,000 250,000 300,000 250,000 200,000 20% 50 30 25 45 30 30 50 20 500,000 400,000 300,000 400,000 350,000 250,000 300,000 250,000 200,000 20 40 40 40 31.50 31.50 50 10 EXHIBIT 1-3 CPCL Other Relevant Data for Cordless Steam Iron Expected costs based on annual production of 350,000 units: Total variable costs $2,800,000 Total fixed overhead 2,712,500 Plant and equipment: No additional machinery or plant space will be required to produce the cordless steam iron. The plant has capacity available to produce 500,000 units per year. Inventory levels: Just-in-time inventory management will result in virtually no inventory being stored at any particular time Canadian Product Corporation Limited (CPCL) is a manufacturer of small house- hold appliances. The company has only one manufacturing facility which services all of Canada. CPCL is well established and sells its products directly to department stores. CPCL wishes to begin manufacturing and marketing its newly developed cordless steam iron. In order to properly evaluate the performance of this new product, management has decided to create a new division for its production and distribution Two of CPCLS competitors have recently introduced their own brands of cordless steam irons at a price of $28 cach. CPCL usual pricing strategy for new products is full absorption cost plus a 100% markup. For the new iron, at a pro- duction and sales volume of 350,000 units per year, this strategy would imply a price of $31.50 CPCL president, Mr.T.C. Leopard, is not sure whether this pricing strategy would be appropriate for the new iron and is considering other proposals as follows: 1. Variable product cost plus a 200% markup 2. A price of S27 to undercut the competition Mr. Leopard hired a market research firm to study the likely demand for CPC cordless steam iron at the three proposed prices. The research firm con- ducted an extensive market test resulting in projected annual sales volumes over the next five years at these prices. These sales projections are summarized in Fxhibit 1-1. The research firm, however, made it clear that there were no guarantees that the market world respond according to the projections Mr. Leopard was not happy with the probabilities that the market research firm assigned to the various price/volume levels. He therefore used his own know- edge and past experience to assign different probabilities (sce Exhibit 1-2). Me Leopard then called Joan Helm, the chief financial officer, to analyze the situation and recommend a five-year pricing strategy for the new cordless steam iron. As a first step. Joan assembled some relevant data which is presented in Exhibit 1-3. REQUIRED As Joan Helm, comply with Mr. Leopard's request. Include in your analysis considera tion of both quantitative and qualitative factors in determining a five-year pricing strat cey for the new iron EXHIBIT 1-1 CPCL Market Research Data for Cardiess Steam Iron EXHIBIT 12 CPCL President's Probability Data for Cordless Steam Iron Selling Price 524.00 Volume Probability 20% Selling Price 52-0.00 SO SOCCHIO 400.00 300.000 100,000 350.0KO 250, 300,000 250,00 27.00 Probability ton 50 +0 20 10 Volume 500.000 400.000 00.000 -400,000 350.000 250.000 300,000 250.000 27.00 35 30 11.50 SO -10 SO EXHIBIT 1-3 CPCL Other Relevant Data for Cordless Steam Iron Expected costs based on annual prod of 350,000 unit Total variable costs 52.900.000 Total faed overhead Plantander Notional chinery of plant space will be requireduce the cordles miron The planetas city vible to produce 100,0%) Inventory levels Jy went will result in vially and my particular Canadian Product Corporation Limited (CPCL) is a manufacturer of small house- hold appliances. The company has only one manufacturing facility which services all of Canada. CPCL is well established and sells its products directly to department stores. CPCL wishes to begin manufacturing and marketing its newly developed cordless steam iron. In order to properly evaluate the performance of this new product, management has decided to create a new division for its production and distribution Two of CPCLA competitors have recently introduced their own brands of curdless steam irons at a price of S28 cach. CPCLS usual pricing strategy for new products is full absorption cost phs a 100% markup. For the new iron, at a pro- duction and sales volume of 350,000 units per year, this strategy would imply a price of $31.50. CPCLS president, Mr.T.C. Leopard, is not sure whether this pricing strategy would be appropriate for the new iron and is considering other proposals as follows: 1. Variable product cost plus a 200% markup 2. A price of $27 to undercut the competition Mr. Leopard hired a market research firm to study the likely demand for CPCN cordless steam iron at the three proposed prices. The research firm con duted an extensive market test resulting in projected annual sales volumes over the next five years at these prices. These sales projections are summarized in Exhibit 1-1. The research firm, however, made it clear that there were neuarantees that the market would respond according to the projections Mr. Leopard was not happy with the probabilities that the market research firm assigned to the various price/volume levels. He therefore used his own know! edge and past experience to assign different probabilities (see Fxhibu 1-2). Me Leopard then called Joan Helm, the chief financial officer, to analyze the situation and recommend a five-year pricing strategy for the new cordless steam iron. As first step. Joan assembled some relevant data which is presented in Echibit 1-3. REQUIRED As Jean Helm, comply with M. Leopard's request. Include in your analysis considera tion of both quantitative and qualitative factors in determining five-year primera egy for the new iron EXHIBIT 1-1 CPCL Market Research Data for Cordless Steam Iron EXHIBIT 12 CPCL President's Probability Data for Cordless Steam Iron Selling Price Value Probabil 52.0 400.000 Pessbability 20 50 30 25 15 30 JO 50 30 S00, 400.00 300,000 100, 350, 250C 30. 250,00) C.RO 27.0 400.000 S000 250.000 31.50 EXHIBIT 13 CPCL Other Relevant Data for Cordless Steam Iron Expected coses based on annual production of 150.000 Tocal variable costs 52.800.00 Total fused heal 2.712,500 Pantandepunt Now where plants will redhe The plantas de produse NG (SMAC) stores. Canadian Product Corporation Limited (CPCL) is a manufacturer of small house- hold appliances. The company has only one manufacturing facility which services all of Canada. CPCL is well established and sells its products directly to department CPCL wishes to begin manufacturing and marketing its newly developed cordless steam iron. In order to properly evaluate the performance of this new product, management has decided to create a new division for its production and distribution Two of CPCL's competitors have recently introduced their own brands of cordless steam irons at a price of S28 cach. CPCLs usual pricing strategy for new products is full absorption cost phas a 100% markup. For the new iron, at a pro- duction and sales volume of 350,000 units per year, this strategy would imply a price of $31.50. CPCL's president, Mr.T. C. Leopard, is not sure whether this pricing strategy would be appropriate for the new iron and is considering other proposals as follows: 1. Variable product cost plus a 200% markup 2. A price of $27 to undercut the competition Mr. Leopard hired a market research firm to study the likely demand for CPCLS cordless steam iron at the three proposed prices. The research firm con- ducted an extensive market test resulting in projected annual sales volumes over the next five years at these prices. These sales projections are summarized in Exhibit 1-1. The research firm, however, made it clear that there were no guarantees that the market would respond according to the projections. Mr. Leopard was not happy with the probabilities that the market research firm assigned to the various price/volume levels. He therefore used his own knowl- edge and past experience to assign different probabilities (see Exhibit 1-2). Mr. Leopard then called Joan Helm, the chief financial officer, to analyze the situation and recommend a five-year pricing strategy for the new cordless steam iron. As a first step, Joan assembled some relevant data which is presented in Exhibit 1-3. REQUIRED As Joan Helm, comply with Mr. Leopard's request. Include in your analysis considera- tion of both quantitative and qualitative factors in determining a five-year pricing strat- egy for the new iron Copyright 2010 Pearson Education Canada APPENDIX EXHIBIT 1-1 CPCL Market Research Data for Cordless Steam Iron EXHIBIT 1-2 CPCL President's Probability Data for Cordless Steam Iron Selling Price Volume Probability Selling Price Volume Probability $24.00 $24.00 10% 50 40 27.00 27.00 500,000 400,000 300,000 400,000 350,000 250,000 300,000 250,000 200,000 20% 50 30 25 45 30 30 50 20 500,000 400,000 300,000 400,000 350,000 250,000 300,000 250,000 200,000 20 40 40 40 31.50 31.50 50 10 EXHIBIT 1-3 CPCL Other Relevant Data for Cordless Steam Iron Expected costs based on annual production of 350,000 units: Total variable costs $2,800,000 Total fixed overhead 2,712,500 Plant and equipment: No additional machinery or plant space will be required to produce the cordless steam iron. The plant has capacity available to produce 500,000 units per year. Inventory levels: Just-in-time inventory management will result in virtually no inventory being stored at any particular time