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product differentiation

1. You operate a company that produces high-end aftermarket iPod speakers for sale in electronics stores. The demand for your speakers has dropped 25% in the last year due to increasing competition. Your sales department has located one potential new customer, who has already received price quotes from several of your competitors. The client is willing to buy 10,000 speakers, but only if you offer a price of $350/speaker, and deliver the speakers within 30 days. Your plant is idle, so you can easily fulfill the order if it is accepted. Accounting has given you the following information relating to production costs:

Per unit costs
10,000 units 15,000 units 20,000 units

Materials
$200 $200 $200

Depreciation
100 100 100

Labor
100 150 175

Total Unit Cost
$400 $450 $475

Should you accept the offer to produce 10,000 speakers at $350/speaker? Explain why or why not.

6. Chevrolet just announced a new incentive program that provides either $5,000 cash back or zero percent financing for up to seven years on Chevrolet Silverado pick-ups. How do you think the bottom line of Heartland Chevrolet in Liberty, MO will be impacted by this offer in the near future? In the longer term?

Solution Preview

1. You should sell for 350. Your per unit costs are 400 but 100 is depreciation of equipment, which is going to be a cost whether you take this offer or not. your unit variable costs are 300. So you can either lose 100 and do nothing or ...

Solution Summary

This solution briefly analyzes product differentiation.

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