Question 1: Cost Plus Pricing

You are required:

QUESTION 1 Basic Art Sdn Bhd is a company producing and selling copper board as a basic for art work. The company's current pricing policy is based on total production cost with 40% mark up. Discussion about pricing policy is one of the matters that is being argued during management meeting, A newly appointed account manager explained that fixed costs should not be considered in setting the price since the cost cannot be avoided in the current situation. He further suggested that the price should be set at a total variable cost with 30% margin on selling price. However, the marketing manager did not agree with the account manager since the price may not cover the fixed costs. He proposed the selling price should be set at total costs with 25% mark up Normally the company works at 80% capacity which is 40,000 pieces. The following are the cost data for the normal production of the copper board: Direct material Direct labour Production overhead Selling overheads Administration overhead RM 480,000 380,000 600,000 330,000 300,000 Additional information: Variable costs for the production overhead and the administration overhead are 60% and 40% respectively. Included in the selling overhead cost is sales commission of RM180,000 paid to the salesman Required: a. Calculate the followings: i. Variable cost per piece and total fixed overhead costs based on normal production level of the copper board. ii. Selling price per piece of copper board according to company's current pricing policy iii. Selling price per piece of copper board according to account manager's suggestion iv. Selling price per piece of copper board according to marketing manager's proposal