Valmont Company developed a new industrial piece of equipment called the XP$-200.$ The company is considering two methods of

establishing a selling price for the XP$-200-$absorption cost$-$plus pricing and value$-$based pricing.

Valmont's cost accounting system reports an absorption unit product cost for XP$-200$ of $$9,400.$ Its markup percentage on absorption

cost is $85\%.$ The company's marketing managers have expressed concerns about the use of absorption cost$-$plus pricing because it

seems to overlook the fact that the XP$-200$ offers superior performance relative to the comparable piece of equipment sold by

Valmont's primary competitor. More specifically, the XP$-200$ can be used for $19,000$ hours before replacement. It only requires $$2,000$

of preventive maintenance during its useful life and it consumes $$170$ of electricity per $950$ hours used.

These figures compare favorably to the competing piece of equipment that sells for $$19,000,$ needs to be replaced after $9,500$ hours

of use, requires $$4,000$ of preventive maintenance during its useful life, and consumes $$200$ of electricity per $950$ hours used.

Required:

If Valmont uses absorption cost$-$plus pricing, what price will it establish for the XP$-200?$

What is XP$-200\text{'}$s economic value to the customer $($EVC$)$ over its $19,000-$hour life?

If Valmont uses value$-$based pricing, what range of possible prices should it consider when setting a price for the XP$-200?$

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If Valmont uses value$-$based pricing, what range of possible prices should it consider when setting a price for the XP$-200?$

Range of possible pricesValmont Company developed a new industrial piece of equipment called the XP$-200.$ The company is considering two methods of establishing a selling price for the XP$-200$absorption cost$-$plus pricing and value$-$based pricing.

Valmont$$s cost accounting system reports an absorption unit product cost for XP$-200$ of $$9,400.$ Its markup percentage on absorption cost is $85\%.$ The company$$s marketing managers have expressed concerns about the use of absorption cost$-$plus pricing because it seems to overlook the fact that the XP$-200$ offers superior performance relative to the comparable piece of equipment sold by Valmont$$s primary competitor. More specifically, the XP$-200$ can be used for $19,000$ hours before replacement. It only requires $$2,000$ of preventive maintenance during its useful life and it consumes $$170$ of electricity per $950$ hours used.

These figures compare favorably to the competing piece of equipment that sells for $$19,000,$ needs to be replaced after $9,500$ hours of use, requires $$4,000$ of preventive maintenance during its useful life, and consumes $$200$ of electricity per $950$ hours used.

Required:

If Valmont uses absorption cost$-$plus pricing, what price will it establish for the XP$-200?$

What is XP$-200$s economic value to the customer $($EVC$)$ over its $19,000-$hour life?

If Valmont uses value$-$based pricing, what range of possible prices should it consider when setting a price for the XP$-200?$