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 $5.25 per hour, and sells for $122,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating cost is $3.25 per hour. Tavis has not yet established a selling price for model FI-73.From a value-based pricing standpoint what is FI-73's economic value to the customer over its 30,000 hour useful life?
A) $181,000
B) $304,000
C) $426,000
D) $226,000

Question

Quizplus · Accepted Answer

The economic value to the customer can be calculated by comparing the total costs of owning and operating the competitor's robot versus the FI-73 over their respective useful lives. The competitor's robot costs $122,000 and has operating costs of $5.25 per hour for 10,000 hours, totaling $52,500 in operating costs ($5.25 * 10,000 hours) and $174,500 in total costs ($122,000 + $52,500). Since the FI-73 lasts three times longer, we would need three of the competitor's robots to match its lifespan, totaling $523,500 ($174,500 * 3). The FI-73 has operating costs of $3.25 per hour for 30,000 hours, totaling $97,500 in operating costs ($3.25 * 30,000 hours). The economic value to the customer is the difference between the total costs of the competitor's robots over 30,000 hours and the operating costs of the FI-73, which is $426,000 ($523,500 - $97,500).

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