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Required: From a value-based pricing standpoint:

Required: From a value-based pricing standpoint:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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McDermott Company developed a new industrial component called IC-75 that offers superior performance relative to the comparable component sold by McDermott's primary competitor. The competing part sells for $1,440 and needs to be replaced after 2,240 hours of use. It also requires $320 of preventive maintenance during its useful life. The IC-75's performance capabilities are similar to its competing product with two important exceptions-it needs to be replaced after 4,480 hours of use and it requires $420 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: 1. What is the reference value McDermott should consider when pricing IC-75? 2. What is the differentiation value offered by IC-75 relative the competitor's offering for each 4,480 hours of usage? 3. What is IC-75's economic value to the customer over its 4,480-hour life? 4. What range of possible prices should McDermott consider when setting a price for IC-75? 1. Reference value 2. Differentiation value 3. Economic value to the customer 4. Range of possible prices <= Value-based price <=
Transcribed Image Text:McDermott Company developed a new industrial component called IC-75 that offers superior performance relative to the comparable component sold by McDermott's primary competitor. The competing part sells for $1,440 and needs to be replaced after 2,240 hours of use. It also requires $320 of preventive maintenance during its useful life. The IC-75's performance capabilities are similar to its competing product with two important exceptions-it needs to be replaced after 4,480 hours of use and it requires $420 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: 1. What is the reference value McDermott should consider when pricing IC-75? 2. What is the differentiation value offered by IC-75 relative the competitor's offering for each 4,480 hours of usage? 3. What is IC-75's economic value to the customer over its 4,480-hour life? 4. What range of possible prices should McDermott consider when setting a price for IC-75? 1. Reference value 2. Differentiation value 3. Economic value to the customer 4. Range of possible prices <= Value-based price <=
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