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 model IA-05's economic value to the customer over its 2,000 hour life?
A) $114,000
B) $68,000
C) $108,000
D) $60,000

Question

Quizplus · Accepted Answer

The economic value of model IA-05 is calculated by considering the cost savings over its 2,000-hour life compared to the competitor's product. The competitor's mold would need to be replaced twice (2 x $54,000) and incur $14,000 in maintenance (2 x $7,000) for 2,000 hours, totaling $122,000. Model IA-05 costs $54,000 for one replacement and $8,000 in maintenance, totaling $62,000. The economic value is $122,000 - $62,000 = $60,000.

Morice Industries Incorporated Has Developed a New Injection Mold, Model