Schimpf Industries Incorporated has developed a new grinder, model WC-13, that is designed to offer superior performance to a comparable grinder sold by Schimpf's main competitor. The competing grinder sells for $24,000 and needs to be replaced after 1,000 hours of use. It also requires $2,000 of preventive maintenance during its useful life. Model WC-13's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $5,000 of preventive maintenance during its useful life.From a value-based pricing standpoint what range of possible prices should Schimpf consider when setting a price for model WC-13?
A) $24,000 ≤ Value-based price ≤ $99,000
B) $75,000 ≤ Value-based price ≤ $96,000
C) $24,000 ≤ Value-based price ≤ $96,000
D) $75,000 ≤ Value-based price ≤ $99,000

Question

Quizplus · Accepted Answer

The value-based price should be between the cost of the competing grinder and the cost of the new grinder, taking into account the differences in performance and maintenance costs. The competing grinder costs $24,000 and needs to be replaced after 1,000 hours of use, while the new grinder costs $5,000 more and needs to be replaced after 4,000 hours of use. The new grinder also requires $3,000 more in preventive maintenance costs than the competing grinder. Therefore, the value-based price should be between $24,000 and $24,000 + $5,000 + $3,000 = $32,000.

Schimpf Industries Incorporated Has Developed a New Grinder, Model WC-13