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 range of possible prices should Morice consider when setting a price for model IA-05?
A) $54,000 ≤ Value-based price ≤ $114,000
B) $54,000 ≤ Value-based price ≤ $108,000
C) $60,000 ≤ Value-based price ≤ $114,000
D) $60,000 ≤ Value-based price ≤ $108,000

Question

Quizplus · Accepted Answer

The value-based price for model IA-05 should consider both its longer lifespan and the increased maintenance costs compared to the competitor's product. The competitor's product costs $54,000 and requires $7,000 in maintenance over 1,000 hours, totaling $61,000 for 1,000 hours of use. Since IA-05 lasts for 2,000 hours, doubling the competitor's lifespan, its base value could be considered as double the competitor's total cost (2 * $61,000 = $122,000). However, IA-05 requires $8,000 in maintenance, making its total cost for 2,000 hours $8,000 (not $7,000). So, the calculation should be $54,000 (purchase price) + $8,000 (maintenance) = $62,000 for the first 1,000 hours, and then another $62,000 for the second 1,000 hours, totaling $124,000. However, since the question asks for the range of possible prices Morice should consider, and given that the base comparison starts with the competitor's price of $54,000 but offers double the lifespan with slightly higher maintenance costs, the minimum value-based price could be slightly above $54,000, acknowledging the additional value provided. The maximum could be up to or slightly below $124,000, considering the total cost of ownership for 2,000 hours. The correct range should reflect the added value of the longer lifespan and the slightly higher maintenance, making A the closest option despite the calculation discrepancy. The explanation provided does not perfectly align with the options given, indicating a need for reevaluation based on the correct approach to value-based pricing, which compares the total cost of ownership and the value provided to the customer over the product's lifespan.

Morice Industries Incorporated Has Developed a New Injection Mold, Model