Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is considering two methods of establishing a selling price for

Valmont Company has 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-200absorption cost-plus pricing and value-based pricing.

Valmonts cost accounting system reports an absorption unit product cost for XP-200 of $9,600. Its markup percentage on absorption cost is 85%. The companys 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 Valmonts primary competitor. More specifically, the XP-200 can be used for 21,000 hours before replacement. It only requires $2,200 of preventive maintenance during its useful life and it consumes $180 of electricity per 1,050 hours used.

These figures compare favorably to the competing piece of equipment that sells for $21,000, needs to be replaced after 10,500 hours of use, requires $4,400 of preventive maintenance during its useful life, and consumes $212 of electricity per 1,050 hours used.

Required:

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

2. What is XP-200s economic value to the customer (EVC) over its 21,000-hour life?

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

  • Req 1 and 2

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

What is XP-200s economic value to the customer (EVC) over its 21,000-hour life?

1. Selling price per unit
2. EVC
  • Req 3

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 prices Value-based price

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing & Assurance Services

Authors: Timothy Louwers, Penelope Bagley, Allen Blay, Jerry Strawser, Jay Thibodeau

8th Edition

978-1260703733, 1260703738

More Books

Students also viewed these Accounting questions

Question

Write short notes on Interviews.

Answered: 1 week ago