Razzle Ltd is developing a new clothes dryer, Dry Master, that it plans to sell to coin-operated
Question:
Razzle Ltd is developing a new clothes dryer, Dry Master, that it plans to sell to coin-operated laundries. Currently, the market leader is a product called DryWell, which is sold by a competitor. The managing director of Razzle Ltd, Fred Price, has engaged a market research agency to help assess the appropriate selling price for the new clothes dryer.
The agency has surveyed a range of laundries and determined the following data for the DryWell:
Selling price ......................................... $18 000
Installation costs ..................................... $ 300
Yearly maintenance cost ....................... $ 200
Expected useful life ............................. 8 years
Disposal value ........................................... zero
Engineering estimates have determined that the Dry Master will require maintenance costing $900 per annum, and will have a useful life of nine years with a disposal value of zero. In addition, the new product will dry clothes more quickly than the DryWell and will result in softer and fluffier clothes. The value of this improved functionality to the customer is estimated at $600. Customers will need to incur average installation costs for the Dry Master of $450 per machine.
Required:
1. Determine the economic value to the customer of the Dry Master. (Do not consider the time value of money.)
2. What price should Razzle charge for the new product? Explain your answer.
3. What additional factors and information should Fred Price consider before he sets the price for the new product?
Step by Step Answer:
Management Accounting Information for creating and managing value
ISBN: 978-1760420406
8th edition
Authors: Kim Langfield Smith, David Smith, Paul Andon, Ronald Hilton, Helen Thorne