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 (4 kg at £2.50/kg) Material 2 7 (1 kg at £7/kg) Direct labour 13 (2 hours at £6.50/hour) Fixed overheads 7 (2 hours at £3.50/hour) Total 37 Required: (a) Using the standard costs calculate two different cost-plus prices using two different bases and explain an advantage and disadvantage of each method. (b) Give two other possible pricing strategies that could be adopted and describe the impact of each one on the price of the product.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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
£
Direct materials
Material 1 10 (4 kg at £2.50/kg)
Material 2 7 (1 kg at £7/kg)
Direct labour 13 (2 hours at £6.50/hour)
Fixed overheads 7 (2 hours at £3.50/hour)
Total 37
Required:
(a) Using the standard costs calculate two different cost-plus
prices using two different bases and explain an advantage
and disadvantage of each method.
(b) 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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