Morice Industries Incorporated has developed a new injection mold, model IA-05, that is designed to offer superior performance to a comparable injection mold sold by Morice's main competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive maintenance during its useful life.From a value-based pricing standpoint what is the differentiation value offered by model IA-05 relative to the competitor's offering for each 2,000 hours of usage?
A) $68,000
B) $60,000
C) $6,000
D) $108,000

Question

Quizplus · Accepted Answer

To calculate the differentiation value, we need to subtract the total cost of the competitor's injection mold from the total cost of model IA-05.

For the competitor's injection mold:
Total cost = $54,000 + $7,000 = $61,000

For Model IA-05:
Total cost = Cost of Mold + Preventive Maintenance Cost
Total cost = $68,000 + $8,000 = $76,000

Differentiation Value = Total Cost of Model IA-05 - Total Cost of Competitor's Injection Mold
Differentiation Value = $76,000 - $61,000 = $15,000

However, the question asks for the differentiation value relative to each 2,000 hours of usage. Since the competitor's injection mold needs to be replaced after 1,000 hours of use, we need to divide the total cost by 2 to compare them on a per 2,000 hours basis.

For the competitor's injection mold:
Total cost per 2,000 hours = $61,000/2 = $30,500

For Model IA-05:
Total cost per 2,000 hours = $76,000/2 = $38,000

Differentiation Value per 2,000 hours = Total Cost per 2,000 hours of Model IA-05 - Total Cost per 2,000 hours of Competitor's Injection Mold
Differentiation Value per 2,000 hours = $38,000 - $30,500 = $7,500

Therefore, the differentiation value offered by model IA-05 relative to the competitor's offering per 2,000 hours of usage is $7,500. The answer is B.

Morice Industries Incorporated Has Developed a New Injection Mold, Model