Lenses Ltd makes six different products: P, Q, R, S, T and U. An analysis of costs ascertains the following:

Fixed costs of £34,200 are allocated per unit as P: £12; Q: £21; R: £21; S: £30; T: £48; U: £39. Using full cost pricing, 10 per cent is to be added per unit for profit.

You are required to:

(a) Calculate the prices that would be charged by Lenses Ltd if full cost pricing was adhered to.

(b) What advice would you give the company if a survey of the market showed that the prices charged could be P: £78; Q: £78; R: £198; S: £225; T: £240; U: £660?

(c) Assuming production of 600 units per period of each unit manufactured, what would be the profit of the firm (i) if your advice in (b) was followed, (ii) if the company continued to produce all of the items?

(d) Suppose that in fact the market survey had revealed instead that the prices charged could be P: £90; Q: £99; R: £225; S: £198; T: £435; U: £390, what would your advice have been to the company?

(e) Assuming that production of each item manufactured was 600 units per month, then what would have been the profit (i) if your advice in (d) had been followed, (ii) if the company chose to continue manufacturing all items?

Transcribed Image Text:

Per unit Direct labour and direct materials Variable manufacturing expenses PE 45 18 Cham R £ 114 30 S f 147 63 T f 186 66 U £ 342 69