Pet Designs makes various accessories for pets. Their trademark product, PetBed,

Question

Pet Designs makes various accessories for pets. Their trademark product, PetBed, is perceived to be high quality but not extravagant, and is sold in a variety of pet stores. Wanda Foster, marketing manager, has convinced her boss that they are missing an important segment of the market. “We can increase the quality of the material and design and market PetBed to a higher-end clientele,” Wanda claims. “We won’t compete with our existing product. It’s win-win!”

PetBeds sell for $51 each. Wanda estimates the gross margin at $32. After working with production engineers and the marketing research team, Wanda has designed a bed that she believes the new market segment will pay $78 for. The production engineers and accountants believe it will cost about $62 to make.

If Pet Designs uses cost-plus pricing and prices most products like the original PetBed, what should be the price of the high-end PetBed?

Price of high end pet bed ____$ per bed

Explanation / Answer

Original Pet bed sales price 51 Original Pet bed Gross margin 32 Gross Margin ratio 62.75% (32/51*100) Now, New Pet bed cost 62 Add: Gross Margin 166.44 (62/37.25% ) Price of High end pet bed is $ 166.44 per bed

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