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Question: albany has recently spent some time on researching and developing...

Question details

Albany has recently spent some time on researching and developing a new product for which they are trying to establish a suitable price. Previously they have used cost-plus 20 per cent to set the selling price.

The standard cost per unit has been estimated as follows:

£

Direct materials:

   Material 1

10

(4kg at £2.50/kg)

   Material 2

7

(1kg at £7.00/kg

Direct labour

13

(two hours at £6.50/hour)

Fixed overheads

7

(two hours at £3.50/hour)

37

Required:

  1. Using the standard costs calculate two different cost-plus prices using two different bases and explain an advantage and disadvantage of each method.

  1. Give two other possible pricing strategies that could be adopted and describe the impact of each one on the price of the product.
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