Tavis Robotics Corporation has developed a new robot-model FI-73-that has been designed to outperform a competitor's best-selling robot. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $4.60 per hour, and sells for $109,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating cost is $2.60 per hour. Tavis has not yet established a selling price for model FI-73.From a value-based pricing standpoint what is the differentiation value offered by FI-73 relative to the competitor's offering for each 30,000 hours of service?
A) $60,000
B) $187,000
C) $278,000
D) $155,000

Question

Quizplus · Accepted Answer

To calculate the differentiation value, we need to find the difference in the total cost of ownership (TCO) of both robots for 30,000 hours of service.

For the competitor's robot:
TCO = (10,000 hours * $4.60 per hour) + $109,000 = $155,000

For model FI-73:
TCO = (30,000 hours * $2.60 per hour) + X (selling price of FI-73)

To find the selling price (X) that makes the TCO of FI-73 equivalent to that of the competitor's robot, we can set the two TCOs equal to each other and solve for X:

(10,000 hours * $4.60 per hour) + $109,000 = (30,000 hours * $2.60 per hour) + X
$46,000 + $109,000 = $78,000 + X
X = $77,000

Therefore, the differentiation value of FI-73 relative to the competitor's offering is:

Differentiation value = TCO of competitor's robot - TCO of FI-73
Differentiation value = $155,000 - (30,000 hours * $2.60 per hour + $77,000) = $278,000

So the correct answer is C.

Tavis Robotics Corporation Has Developed a New Robot-Model FI-73-That Has