Napp Heavy Machinery Corporation Has Developed a New Drill Press-Model

question 343

Multiple Choice

Napp Heavy Machinery Corporation has developed a new drill press-model GJ-37-that has been designed to outperform a competitor's best-selling drill press. The competitor's product has a useful life of 30,000 hours of service, has operating costs that average $1.70 per hour, and sells for $169,000. In contrast, model GJ-37 has a useful life of 120,000 hours of service and its operating cost is $1.10 per hour. Napp has not yet established a selling price for model GJ-37. From a value-based pricing standpoint what range of possible prices should Napp consider when setting a price for GJ-37?

• A) $579,000 ≤ Value-based price ≤ $748,000
• B) $169,000 ≤ Value-based price ≤ $748,000
• C) $301,000 ≤ Value-based price ≤ $579,000
• D) $169,000 ≤ Value-based price ≤ $301,000

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Definitions:

Quantity Of Output

The total amount of product or service produced by a company during a given period.

Production Expenses

Costs incurred in the process of manufacturing or producing goods and services.

Variable Cost Estimate

An approximation of the costs that vary in direct proportion to the volume of output or production, such as materials and labor.

Sensitivity Analysis

An approach utilized to assess the effects that changes in an independent variable have on a designated dependent variable within established assumptions.