Dallas Ltd, a new start-up company, has successfully developed anew ultra-light mobile phone that comes with a 20-megapixel frontand rear camera, 512 gigabyte of storage and has a 50% longerbattery life than all the other mobile phones currently sold in themarket.

Given that the company has already incurred research anddevelopment costs of £5 million, it wants to ensure that the priceit will charge for the product is set at the right level.

To support with the pricing decision, the management accountantof Dallas Ltd has provided in the table below the budgetedproduction costs at various levels of activity. Within this rangeof activity, there are no step-up in fixed costs.

Annual Production (units)	4,000	7,500	10,000	12,000
Production Costs	£	£	£	£
Direct Material	480,000	900,000	1,200,000	1,440,000
Direct Labour	360,000	675,000	900,000	1,080,000
Overheads	1,380,000	1,537,500	1,650,000	1,740,000

Dallas Ltd plans to produce and sell 6,000 units of the productduring the first year and non-production costs, all of which arefixed, will be £500,000. The company does not produce or sell anyother products.

REQUIRED

(a) Calculate theselling price that Dallas Ltd will set if it uses a marginalcost-plus pricing policy and applies a 200% mark-up to the marginalcost (variable cost) of the product.

(b) Calculate the sellingprice that Dallas Ltd will set if it uses a full cost-plus pricingpolicy and applies a 100% mark-up to the full production cost ofthe product.

Answer rating: 100% (QA)

a The selling price that Dallas Ltd will set if it uses a marginal costplus pricing policy and appli... View the full answer