Pringly A meeting of senior managers at the Pringly Division has been called to discuss the pricing strategy for a new product. Part of the discussion will focus on estimating sales for the new product. Over the past years, a number of new products have failed to meet their sales targets. It appears that the company's profit for the year will be lower than budget and the main reason for this is the disappointing sales of new products. A new technique for estimating the probability of achieving target sales and profits will be discussed. This requires managers to estimate demand for the new product and assign probabilities. A range, rather than only one goal will be established.

Proposed Scenario - One

Selling price of $170

Annual fixed costs at $20,000,000

Variable costs are $30 per unit

Target Profit is $4,000,000

A number of managers are in favor of this strategy, as they believe it is important to reduce costs.

Table 1 - Scenario One Calculations

Price

$170.00

Fixed Costs

$20,000,000.00

Variable Costs

$30.00

Break Even...

With the higher selling price the annual fixed costs would increase to $25,000,000. The marketing department is adamant that increased emphasis on advertising and promotions is essential.
Selling price of $200

Annual fixed costs at $25,000,000

Variable costs are $30 per unit

Target Profit is $4,000,000

Table 2 - Scenario Two Calculations

Price

Fixed Costs

25

Variable Costs

30

Break Even (Units)

147,058.82

Target Profit

4

Target Units for Expected Profit

170,588.24

Product Demand

The following probability distributions have been agreed, with the managers after consultation with all departments, and are the same for both selling prices.

Table 3 - Expected…