Question

. The Pointer Appliance Company is investigating the additional of a new and improved pulsating blender to its line of consumer appliances.   The product chops, grinds, grates and blends smoothies twice as fast as all other blenders on the market. It has a 10 year warranty on the motor and offers a replacement 5 cup glass blender cup for $10.99. The blender is going to require additional expenditures for the production line on the part of the Pointer Company.  Management wants to determine what to price the blender at.   The total fixed cost associated with manufacturing the blenders is $445,000.  The variable cost is $15.99 per unit.  Given the costs for adding the blender, management is considering selling the blender at one of these prices:  $20.99, $30.99 and $39.99.  Calculate the breakeven point in units at each of the selling prices: $20.99, $30.99 and $39.99 and show the calculations.  Through your research you know that this is a tough competitive market with many competitors.  Most competitors have between 2-8% of the market and the market appears to be growing at a 5% rate per year.  The total market for blenders of this type was 1,500,000 units last year.  Given that the market leader is selling its blender for $29.99, which price would you recommend and why?  (Value 10 pts)

Answer 1

If the market leader is selling for $29.99, then it is advisable to sell for less than $29.99 say at 95%

i.e., $28.49. By selling at this price, the company will be able to recover its cost, achieve its

break-even point and be able to maintain competitive edge also. This price is $1.5 less than the

market leader' s price and thus it attracts more business to company. However, at this price the

company needs to more than 19.6% of the market share to break-even. At market leader

price of $29.99, the company will have to capture more than 10% of market share to break-even.