Reference no: EM13486383

Exam Standard Question-

Unfair Pack  produces one product, the hamper. For the coming year the budgeted estimated sales are 10,000 units.  The firm currently uses full cost plus pricing to determine the selling price, the markup is 10%.  The budgeted costs for the coming year are as follows;

 

Costs	£ Per Unit	£ Cost for the year
Direct labour & materials	5
Variable Manufacturing overhead	3
Fixed Manufacturing overhead*		20,000
Variable sales & marketing	3
Fixed sales & marketing*		70,000

* All budgeted fixed costs are recovered on a per unit basis 

 

a) Required

i. Using the firm's current method of pricing calculate the selling price for one unit.

ii. Calculate the % markup required to maintain the selling price you have calculated in a.i if the firm uses;

                        - Manufacturing cost plus pricing

                        - Marginal cost plus pricing

                        - Marginal manufacturing cost plus pricing

iii. Explain the differences in the four methods of costing you have used in (a.i) and (a.ii) and in which situation you would use them.

 

b) Identify and explain the advantages and disadvantages of using cost plus pricing.