Morr Logistic Solutions Corporation has developed a new forklift-model QY-49-that has been designed to out perform a competitor's best-selling forklift. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $3.70 per hour, and sells for $109,000. In contrast, model QY-49 has a useful life of 40,000 hours of service and its operating cost is $2.10 per hour. Morr has not yet established a selling price for model QY-49.From a value-based pricing standpoint what is QY-49's economic value to the customer over its 40,000 hour useful life?
A) $500,000
B) $193,000
C) $146,000
D) $391,000

Question

Quizplus · Accepted Answer

The economic value to the customer over its 40,000 hour useful life is the difference in the total cost of ownership between the two forklifts. The total cost of ownership is the sum of the purchase price and the operating costs over the useful life. For the competitor's forklift, the total cost of ownership is $109,000 + (3.70 * 10,000) = $146,000. For model QY-49, the total cost of ownership is $x + (2.10 * 40,000) = $x + $84,000, where x is the selling price. To find the economic value to the customer, we subtract the total cost of ownership of the competitor's forklift from the total cost of ownership of model QY-49: $x + $84,000 - $146,000 = $x - $62,000. Since we want the economic value to be positive, we solve for x: $x - $62,000 > 0, which gives x > $62,000. Therefore, the selling price of model QY-49 must be greater than $62,000 to provide a positive economic value to the customer.

Morr Logistic Solutions Corporation Has Developed a New Forklift-Model QY-49-That