Question

In: Accounting

A competitor sells a tractor for $14,000. Your company has been working on a new product...

A competitor sells a tractor for $14,000. Your company has been working on a new product to enter the market and your marginal cost is $8500. Your new tractor is superior in some ways and is inferior in other ways. It is slower so its rela tive value is decreased by $1000 but it requires less maintenance, which is worth $3500 per tractor. 1) What is the price of the nearest comparable alternative product to your tractor? 2) What is the differential value of your new tractor in comparis on to the competitor product? 3) What is the Exchange Value of the new tractor? 4) What range would you suggest the tractor be priced at on introduction?

Solutions

Expert Solution

Answer:-

1) What is the price of the nearest comparable alternative product to your tractor?  

Answer:- Comparable Alternative product to your tractor means Existing competitor's product (minus)/ Plus ( adjustements due to features differences)

so nearest comparable alternative product to your tractor = $14,000 - $1000 + $3500

= $16,500

note = 1. $1000 to be deducted because it is slower than existing tractor and '

2. $ 3500 added because this will enhances tractor and performance and adds up value.

2) What is the differential value of your new tractor in comparis on to the competitor product?

Answer:- Differential Value of your new Tractor = Competitors price - your Marginal Cost of Production.

= 14,000 - 8,500 = $5,500 is the differetial value .

3) What is the Exchange Value of the new tractor?

Answer:- exchange value of new tractor would be $3,500 - $1,000 = $2,500 because these are the benfits and losses which one can get on exchange their old tractor with new tractor as produced by your company.

4) What range would you suggest the tractor be priced at on introduction?

Answer:- The price to be suggested from my point of view is between $8,500 to $16,500

if company is a profit center they should price the product at $16,500 on the basis of demand in the market

and if company is cost center they should price the product at $8,500 to recover their marginal costs

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Your company has purchased a large new truck-tractor for over the road use. It has a...
Your company has purchased a large new truck-tractor for over the road use. It has a cost basis of $209,697. Its MV at the end of 18 years is estimated as $1,271. Assume it will be depreciated using DDB method and the depreciation period is 18 years. What is the depreciation payment in year 4?
Your company's research and development department has been working on a new process that, if it...
Your company's research and development department has been working on a new process that, if it works, can produce oil from coal at a cost of about $15 per barrel versus a current market price of $100 per barrel. The company needs $10 million of external funds at this time to complete the research. The results of the research will be known in about one year, and there is about a 50-50 chance of success. If the research is successful,...
Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units...
Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units of Product B. The selling prices are $65 per unit for Product A and $96 per unit for Product B. Product A’s direct materials and direct labor costs per unit are $30 and $12, respectively. Product B’s direct materials and direct labor costs per unit are $34 and $15, respectively. The company uses a plantwide overhead rate based on direct labor dollars. It is...
Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units...
Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units of Product B. The selling prices are $65 per unit for Product A and $96 per unit for Product B. Product A’s direct materials and direct labor costs per unit are $30 and $12, respectively. Product B’s direct materials and direct labor costs per unit are $34 and $15, respectively. The company uses a plantwide overhead rate based on direct labor dollars. It is...
Problem 9-19 (Algorithmic) The product development group at Landon Corporation has been working on a new...
Problem 9-19 (Algorithmic) The product development group at Landon Corporation has been working on a new computer software product that has the potential to capture a large market share. Through outside sources, Landon's management learned that a competitor is working to introduce a similar product. As a result, Landon's top management increased its pressure on the product development group. The group's leader turned to PERT/CPM as an aid to scheduling the activities remaining before the new product can be brought...
Your company is considering launching a new product. Designing the new product has already cost $500,000....
Your company is considering launching a new product. Designing the new product has already cost $500,000. The company estimates that it will sell 750,000 units per year of $3.2 per unit and variable non-labor costs will be $1 per unit. Production will end after year 3. New equipment costing $1 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year...
You are an executive in your company. A senior executive of your key competitor has recently...
You are an executive in your company. A senior executive of your key competitor has recently interviewed you extensively for a more lucrative position with this competitor. Having not heard back from the interviewer, you did some investigation and found out that, this was a fake interview aimed only at gaining competitive intelligence. You know that this fake interview is a violation of the Christian religious view of ethics. a. Explain why the fake interview violated the Christian religious view...
You have recently started working as a product analyst at a company that manufactures and sells...
You have recently started working as a product analyst at a company that manufactures and sells a variety of soft drink products. One of your first jobs is to categorize each of the firm's new products for the upcoming year into the appropriate new product category for a presentation you are putting together for your manager. A new product is one that is new to a company in any way. If a product is functionally different from existing products in...
ABC (American bread company) is a competitor in the product market, but a monopsonist in the...
ABC (American bread company) is a competitor in the product market, but a monopsonist in the labor market. ABC's production function is Q = 30L - 0.5L2 . Market demand for bread is Q = 1000 - 5P and supply is Q = -20 + 250P. The market supply of labor is W = 2L. 1. Derive the unconditional demand for labor for ABC. 2. Suppose ABC does not exploit its monopsony power (acts as a competitor in the labor...
A company that develops over-the-counter medicines is working on a new product that is meant to...
A company that develops over-the-counter medicines is working on a new product that is meant to shorten the length of sore throats. To test their product for effectiveness, they take a random sample of 100 people and record how long it took for their symptoms to completely disappear. The results are in the table below.  The company knows that on average (without medication) it takes a sore throat 6 days or less to heal 42% of the time, 7-9 days 31%...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT