Homework Help is Here – Start Your Trial Now!
Business
Accounting
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-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: 1. If Valmont uses absorption cost - plus pricing, what price will it establish for the XP-200? 2. What is XP-200's economic value to the customer (EVC) over its 19,000 - 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? please show your work and any formulas that you used.

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-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: 1. If Valmont uses absorption cost - plus pricing, what price will it establish for the XP-200? 2. What is XP-200's economic value to the customer (EVC) over its 19,000 - 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? please show your work and any formulas that you used.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter3: Cost Behavior
Section: Chapter Questions
Problem 34P: Kimball Company has developed the following cost formulas:...
See similar textbooks
icon
Related questions
Question
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-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: 1. If Valmont uses absorption cost - plus pricing, what price will it establish for the XP-200? 2. What is XP-200's economic value to the customer (EVC) over its 19,000-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? please show your work and any formulas that you used.
Transcribed Image Text: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-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: 1. If Valmont uses absorption cost - plus pricing, what price will it establish for the XP-200? 2. What is XP-200's economic value to the customer (EVC) over its 19,000-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? please show your work and any formulas that you used.
Expert Solution
steps

Step by step

Solved in 5 steps with 7 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Cash Flows
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Cost Accounting
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS