03-05-2014, 01:06 PM
Valuable Bank Ltd - Case on Product Life Cycle Costing
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Valuable Bank Ltd launches a deluxe type Co- branded Premium credit card in the market. The market research study reveals that a demand of 20000 units/month of such Co- branded Premium credit card thus launched, exist. The variable cost/unit of it Rs.640 and the total fixed overhead is Rs.20,00,000 per month. The selling price is 125% of the variable cost. The company adopts a policy of penetrating pricing. The demand of the walkman per month is given by the equation Q1 = 2000 t1 – 50 t12, where Q is the demand in unit and t is the time in months from its introduction in the market. When 50% of the market has been penetrated, the company changes its pricing policy to 150% of the variable cost for the subsequent months, till it captures the whole market. The profit earned during the maturity stage is Rs.33.0 crores.
A competitor, Strategic Bank Ltd. then enters the market with a people’s brand credit card having a demand function of Q2 = 2500 t2 - 30 t22. When people is introduced, the demand in the market rises to 21500 units/month. Deluxe’s price is reduced to Rs.880 to combat the price of people at Rs.800 each. When people is introduced, the demand of deluxe declines, the total market demand remaining the same. When the sale of deluxe drops around 1500 units/month, BEL discards the product.
Determine:
(i) The product life cycle of deluxe;
accordingly
(ii) Total contribution earned by
deluxe; and
(iii) Total sales of deluxe.