Case study: Read the following case thoroughly and answer the questions:

QMS has invested Rs. 50 million in refurbishing an existing facility to manufacture the new product. One production begins; the company estimates that it will incur fixed costs of Rs. 100 million. The variable cost to produce each device is estimated to be Rs. 12,500 and is expected to remain at that level for the output capacity of the facility. The company expects unit sales of 100,000 units. The company is using cost plus pricing (mark up pricing). QMS wants to earn a 25% markup on sales. QMS would be selling this product to consumers through wholesalers and retailers

Case 1. Calculate

1. Total Cost
2. Per unit cost
3. Markup price, assuming the company uses cost plus pricing
4. ROI price, assuming the company uses target return pricing and wants a 30% return on its investment

Case 2.

(1) Assume the actual sales 80,000 units that is lower than the expected sales, then what would be the impact of this lower sales on (1) unit cost, (2) Realized percentage markup on sales and (3) ROI

Note: Justify your answer by using figures given in the above case study.

(2) What are the potential problems with these cost based pricing methods?

Case 3.

As mentioned above, QMS is expecting to sell its product to consumers though wholesalers and retailers, thus it must incorporate the margin that is offered to retailers and wholesalers. Suppose, retailers expect a 30% margin and wholesalers want a 10% margin on their respective selling prices. And suppose that QMS sets a manufacturer's suggested retail price (MSRP) of Rs. 27,000. What price QMS will charge to its wholesalers and retailers?

Case 4.

Suppose the whole sale price of QMS is Rs. 17,000 per unit, fixed costs is Rs. 100 million, variable cost is Rs. 12,500 per unit. Find,

1. Contribution margin per unit
2. Contribution margin ratio
3. Break-even point in units (or volume)
4. Break-even point in rupees

Case 5.

Suppose QMS would like to realize a Rs. 20 million profit in the first year. How many must it sell at Rs. 17,000 price to cover fixed costs and produce this profit? Use the data given in Case 4.