Valmont Company has developed a new industrial piece of equipment called the XP200. The company is considering two methods of establishing a selling price for the XP200absorption cost-plus pricing and value-based pricing. Valmonts cost accounting system reports an absorption unit product cost for XP200 of $8,400. 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 XP200 offers superior performance relative to the comparable piece of equipment sold by Valmonts primary competitor. More specifically, the XP200 can be used for 20,000 hours before replacement. It only requires $1,000 of preventive maintenance during its useful life and it consumes $120 of electricity per 1,000 hours used. These figures compare favorably to the competing piece of equipment that sells for $15,000, needs to be replaced after 10,000 hours of use, requires $2,000 of preventive maintenance during its useful life and consumes $140 of electricity per 1,000 hours used.

Required (show all the work process):

1. If Valmont uses absorption cost-plus pricing, what price will it establish for the XP200?

2. What is XP200s economic value to the customer (EVC) over its 20,000-hour life?

3. If Valmont uses value-based pricing, what range of possible prices should it consider when setting a price for the XP200?

4. What advice would you give Valmonts