Short Case Scenario 12-1

question 255

Essay

Short Case Scenario 12-1
Bill and Farrah have been recently hired by Superior Stereo Systems, a cutting-edge manufacturer of stereo speakers. Both Bill and Farrah have been assigned to work on two product teams, the Superior V, an existing product, and the Superior VI, a brand new speaker technology. The Super V is reviewing the pricing strategy used to this point. Bill, a recent graduate with a degree in economics, is insistent that they should price the speakers to maximize profits. He explains, "It is basic economics-companies price their products to maximize products. There's no question-this is the strategy that we should take." Farrah, remembering what she learned in her marketing courses, isn't so sure that Bill is on the right track. The technical specifications of the Superior VI speakers have been worked out, but the team is struggling with pricing. Some members of the group think that the speakers should be priced higher than the Superior V, while others are arguing for a lower price.
-A piece of bad publicity has surfaced about Superior's quality.How can Superior counter this negativity?

---

Definitions:

Retained Earnings

The portion of net income that is retained by the corporation rather than distributed to its shareholders as dividends.

Earnings Restatements

The act of amending previously reported financial statements to correct errors.

Dividends

Payments made by a corporation to its shareholders, usually in the form of cash or additional shares, from its profits.

Depreciation

This is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the consumption of the asset over time.