Question:
Pet Designs makes various accessories for pets. Their trademark product, Pet Bed, 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 Pet Bed to a higher-end clientele," Wanda claims. "We won"t compete with our existing product. It"s win-win!" Pet Beds sell for $45 each. Wanda estimates the gross margin at $15. 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 $58 to make.
Required
1. 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?
2. If Pet Designs wants to preserve the existing gross margin percentage, what is the target cost at a market price of $78?
3. Based on your answers to (a) and (b), what are Pet Designs" alternatives?