the pointer appliance company is investigating the additional of a new and impro
ID: 453290 • Letter: T
Question
the pointer appliance company is investigating the additional of a new and improved pulsating blender to its line of consumer appliances. the product chops, grinds, grates, and blends smoothies twice as fast as all other blenders on the market. it has a 10 year warranty on the motor and offers a replacement 5 cup glass blender cup for $10.99. the blender is going to require additional expenditures for the production line on the part of the Pointer Company. Management wants to determine what to price the blender at. the total fixed cost associated with manufacturing the blenders is $445,000. the variable cost is $17.99 per unit. given the costs for adding the blender, management is considering selling the blender at one of these prices: $25.99, $34.99, and $39.99. CALCULATE THE BREAKEVEN POINT IN UNITS AT EACH OF THE SELLING PRICES: $25.99, $34.99, $39.99 AND SHOW CALCULATIONS. through your research you know that this is a tough competitive market with many competitors. most competitors have between 2-8% of the market and the market appears to be growing at a 5% rate per year. the total market for blenders of this type was 1,500,000 units last year. given that the market leader is selling its blender for $29.99, which price would you recommend and why?
Explanation / Answer
Here Fixed cost = $445,000
Variable cost = $17.99
Selling price Option 1 : Price = $25.99, Contribution = $25.99-$17.99 = $8
Selling Price option 2 : Price = $34.99, Contribution = $34.99-$17.99= $17
Selling Price Option 3 : Price = $39.99, Contribution = $39.99-17.99 = $22
Break Even point = Fixed Cost / Contribution =
Selling price Option 1 : Break Even Point = $ 445,000/$8 = 55625
Selling Price Option 2 : Break Even Point = $445,000/$17= 26176
Selling price Option 3 : Break Even Point = $ 445,000/$22 =20227
The total volume of market is 1,500,000 units. The market share of competitiors = 2-8 %
Lets take lower limit , The lower limit 2% of 1,500,000 = 30,000 units
The upper limit , 8% of 1,500,000 = 120,000 units
The price is to be charged, The market leader is selling at $29.99 . Our product is of superior performance than other companies products. Two strategies, i woould like suggest
1: Penetrating pricing strategy at $25.99, and get maximum market share
2: Niche Market at superior price of $34.99, Less market share more profit volume.
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