Production Operation Assignment

Assignment 6 PRICING a) Computation of Economic Value of an fling Mercedes Benz is launching its luxury SUV (called the CDL class) in a market dominated by Lexus GL. The CDL class uses diesel and obtains 25 miles per gal. The Lexus model, costd at $48000, uses premium gasolene and obtains 20 miles per gallon. Both the models need to be serviced annually but the CDL being a diesel engine requires annual service that is costlier by $100. The life of a diesel engine is typically longer hence the remainder valuate of a 10 social class old CDL is estimated to be $1600 higher than the Lexus. digest (i) the fair(a) cost of premium gasolene to be $3. 0 per gallon (ii) the fair(a) cost of diesel to be $3. 25 per gallon (ii) the average customer drives 12000 miles per year and (iii) there is no time discount. What should be the price of the CDL such that the economical prize of Benz CDL over Lexus GL (during a 10 year use horizon by a customer) is completely appropriated by Mercedes B enz? The economic value of CDL Price of substitute=48000 Cost economy=(12000/20*3-12000/25*3. 25-100)=140 Revenue enhancing=residual value=1600+residual value of GL purpose horizon=10 EV of CDL=48000+140*10+1600+residual value of GL=51000+residual value of GL The economic value of GL Price of substitute=XCost saving=(12000/25*3. 25-12000/20*3+100)=-140 Revenue enhancing=residual value=residual value of GL Use horizon=10 EV of GL=X+(-140)*10+ residual value of GL=X-1400+residual value of GL To make (51000+residual value) competent (X-1400+residual value of GL) X should be 52400 So the price of CDL should be lower than 52400 dollars such that the EV of CDL is higher than GL. b) Breakeven Analysis Nokia has opinionated to manufacturing a special edition cellphone called HiRide for the teen market close year that will be sold with Sprints tuner service. For this phone, Nokias variable manufacturing cost is $35 per phone.Fixed manufacturing costs amount to $20 million and advertisi ng costs are expected at $6 million. Nokia will sell HiRide to retailers and pay its own salesmen a commission of $8 per phone sold to the retailers. The retail price (i. e. , price paid by the end customer) of the product is $120 and retail margin typically average about 10%. (i) What is the price at which Nokia sells to retailers? Assume that the price is X, thereof X*(1+10%)=120 X=$109 (ii) What is Nokias contribution per unit sales for HiRide? Contribution per unit= P-VC=109-(35+8)=$66 (iii) What is Nokias breakeven volume?BE volume=FC/contribution per unit=? (20000000+6000000)/66=393939. 4? 393940 (iv) Nokias real sales in grade 1 turned out to be 375000 units. Since the product did not break even, Nokias product manager decided to reduce the commission offered to its salesmen in Year 2. Provided the sales volume, price, and other wintry costs remain the same as in Year 1, how very much should be the new commission so that HiRide breaks even in Year 2? Assume that it is X , thus The new contribution per unit would be 109-(35+X), which equals 74-X BE volume =375000=FC/ new contribution per unit=26000000/(74-X) So X =4. 76$