Chapter 8, Problem 8.7BYP

The January 2011 issue of Strategic Finance includes an article by J. Lockhart, A. Taylor, K. Thomas, B. Levetsovitis, and J. Wise entitled "When a Higher Price Pays Off."

Instructions

Read the article and answer the following questions.

(a) Explain what is meant by a “low-cost” supplier versus a “low-priced” supplier.

(b) Clarus Technologies' products are typically priced significantly higher than its competitors' products. How is it able to overcome the initial "sticker shock"?

(c) List the five categories of costs that the authors used to compare the Tornado to competing products. Give examples of specific types of costs in each category.

(d) The article discusses full-cost accounting as developed by the Environmental Protection Agency (EPA). What are the characteristics of this approach, and what implications does the approach used in this article have for corporate social responsibility?