Week 3 Discussion QuestionIn working out your responses to the Discussion Question, you should choose examples from your own experience or find appropriate cases on the Web that you can discuss. Credit will be given for references you make to relevant examples from real companies.
Consider the following statement: To maximise profit, you need to sell your output at the highest price. After what you have learned this week with regards to costing systems and pricing of products, analyse the validity of this statement. How should marginal costs be considered when determining prices?
Week 3 Hand-in Assignment
Managing Finance Week-3 Hand-In Assignment
A computer manufacturer produces three types of devices:mobile phones, tablets, and computers. For the production of these three devices you have the following information:
Phone
Tablet
Computer
Material cost per unit
£90
£140
£315
Direct labor hours per unit
2
2.5
4
Budgeted units
1,500,000
900,000
1,200,000
Labor cost per hour
£8
Utilities
£20,000,000
Rent
£15,000,000
Audit and legal
£5,000,000
£40,000,000
Total
£80,000,000
ABC analysis suggested that overhead costs are distributed to the three products according to the table below:
Phone
Tablet
Computer
Utilities
£8,000,000
£5,000,000
£7,000,000
Rent
£8,250,000
£2,250,000
£4,500,000
Audit and legal
£2,900,000
£1,250,000
£850,000
£23,200,000
£6,000,000
£10,800,000
For each of the three products, the company aims at a different percentage for profit. Under the full absorption costing method and the targeted profit percentage, the prices of the three products should be:
Phone
Tablet
Computer
Full costing price
£170.69
£233.87
£435.67
Calculate the aimed profit percentages for the three products and under the full absorption costing method, with overhead costs absorbed on the basis of direct labour hours.
Use the profit percentages that you derived in (1) and calculate the prices of the three products under the ABC system.
Recommend a cost system and include any changes that you would suggest to the pricing strategy of the computer company (target length 300 words).