Pricing to Competition When ShorTech Introduced Its Quadrant Mobile Phone,it Had Few Competitors

question 36

Essay

Pricing to Competition
When ShorTech introduced its Quadrant mobile phone,it had few competitors and so it set a price of $500 when its unit cost was $350.The economics consulting firm it hired to estimate the demand elasticity confirmed this was the optimal price.Since then,entry has occurred that make customers more price conscious.When it rehired the economics consulting firm to estimate the demand elasticity,it found that demand had become more elastic at -4.Also,it eked out cost savings and now has a unit cost of $300.What price should ShorTech charge now?

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Definitions:

Ending Work in Process Inventory

The value of goods that are partially completed at the end of an accounting period, which have not yet been transferred to finished goods inventory.

Units Transferred Out

The total quantity of items that have completed the production process and are moved out of the work-in-process stage.

Process Costing System

An accounting method used when identical products are mass-produced, assigning costs to units of product based on the process they undergo.

Overhead Allocated

The process of distributing overhead costs to specific products, services, or departments based on a predetermined rate or method.