Reference no: EM132990792

Fancy Fleece developed a new outdoor wear fleece fabric that is both wind and water resistant, but retains a soft and fuzzy feel. The research and development process was more expensive than Fancy's managers anticipated, and the materials in the fabric are also more expensive than anticipated. The managers believe that if Fancy prices the fleece to cover total costs, no one will buy it. The marketing department held several focus groups with manufacturers who produce and sell winter jackets and pants to determine an appropriate price. The marketing department also surveyed customers who recently purchased fleece jackets to determine the amount of premium they would be willing to pay for a jacket that is both wind and water resistant. The marketing department concluded that the new fleece fabric would sell at a price that covers variable costs, but does not cover the total costs of production and development. You have been asked to help the managers decide whether to produce the fleece and how to price it if they do produce it.

Problem 1: What sort of analysis would you perform for this decision?