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Managerial Accounting: Factors Influencing Price

Mobile Battery features more than a dozen brands of batteries in many sizes. Two of the brands are PowerPlus and SuperPower. The following information about the two brands was obtained. Selling prices include installation costs. Each battery costs $10 to install.

Selling Price Installed Cost per Battery
PowerPlus $120 100
SuperPower $110 70

1. Compute each brand's net unit selling price after installation.
2. Was cost the main consideration in setting those prices?
3. What other factors could have influenced those prices?

Solution Preview

Type Selling Price Cost Per Battery Gross Profit Gross Margin % Selling Price before installation
PowerPlus 120 100 20 17 % 110
SuperPower 110 70 40 36 % 100

2. Was cost the main consideration in setting those prices?
No. By computing the Gross Margin it can be seen that the selling price for the SuperPower was set to arrive at a 36 % gross profit versus the PowerPlus at 17 %. It seems the company is trying to create more profit from the sale of the SuperPower versus the PowerPlus. If we had information on the units to be sold, we could analyze this hypothesis in more detail.

3. What other factors could have influenced those prices? Other factors influencing Selling Price are:

Market Structure

"The number of competitors in your industry will affect your pricing strategy. Economists categorize market structures into three distinct groups: perfectly competitive, oligopoly and monopoly. In a perfectly ...

Solution Summary

Calculation and setting market price based on Monopoly, Oligopoly and Environment influences

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