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Group Assignment
1. Explain the concept of Working Capital Management. Why is it considered a key
indicator of a firm’s short-term financial health?
2. Compare aggressive, conservative, and moderate working capital policies. Which
policy is best and why?
Individual Assignment
Case Study on Pricing Decisions
ZenTech Mobiles Ltd.
1. Company Background
ZenTech Mobiles Ltd. is a fast-growing smartphone manufacturing company operating in the
mid-range and premium smartphone market. The company plans to launch a new smartphone
model called “ZenPhone X5”, targeting urban youth and working professionals.
The smartphone market is highly competitive, dominated by global brands offering advanced
features at competitive prices. Management must take a critical pricing decision before the
national launch of ZenPhone X5.
2. Cost Structure of ZenPhone X5 (Per Unit)
Particulars Amount ($)
Direct Materials (Processor, Display, Battery, Camera) 220
Direct Labour 70
Variable Manufacturing Overhead 40
Variable Selling & Distribution Expenses 30
Total Variable Cost per Unit 360
Fixed Costs (Annual)
Fixed Manufacturing Overheads: $1,800,000
Fixed Marketing & Administrative Expenses: $1,200,000
Total Fixed Costs: $3,000,000
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Expected annual production and sales volume: 25,000 units
3. Market Information
Competing smartphones with similar specifications are priced between $480 – $560.
Market research shows ZenPhone X5 is perceived as value-for-money with premium
features.
Estimated demand at different price levels:
Price per Unit ($) Expected Sales (Units)
460 32,000
500 28,000
520 25,000
560 20,000
4. Pricing Objectives
ZenTech Mobiles Ltd. has set the following objectives:
1. Earn a minimum return of 20% on sales.
2. Capture significant market share in the first year.
3. Recover fixed costs within one year.
4. Build a strong brand image for future premium launches.
5. Pricing Alternatives
Alternative 1: Cost-Plus Pricing
Fixed cost per unit = $3,000,000 ÷ 25,000 = $120
Total cost per unit = $360 + $120 = $480
To earn 20% profit on sales:
Selling Price = $480 ÷ (1 – 0.20) = $600
Issue: Price is above competitors’ range and may reduce demand.
Alternative 2: Competitive Market Pricing
Set price within market range:
Proposed price: $520 per unit
Expected sales: 25,000 units
Alternative 3: Contribution-Based Pricing
Price ($) Contribution per Unit ($) Expected Sales Total Contribution ($)
460 100 32,000 3,200,000
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Price ($) Contribution per Unit ($) Expected Sales Total Contribution ($)
500 140 28,000 3,920,000
520 160 25,000 4,000,000
560 200 20,000 4,000,000
6. Decision Problem
Management must decide:
The optimal selling price for ZenPhone X5.
Whether to adopt a penetration pricing or competitive pricing strategy.
How pricing will affect brand positioning and long-term profitability.
7. Questions for Students
1. Calculate profit or loss at each price level.
2. Which price maximizes contribution and profit?
3. Should ZenTech adopt cost-plus pricing despite competitive pressure?
4. Identify qualitative factors affecting smartphone pricing decisions.
5. Recommend a pricing strategy with justification.