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- This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
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- May 23, 2021 at 11:30 am #621524
Hi John
Chair Co has in development several new products. One of them is a new type of luxury car seat. The estimated labour time for the first unit is 12 hours but a learning curve of 75% is expected to apply for the first eight units produced. The cost of labour is $15 per hour.The cost of materials and other variable overheads is expected to total $230 per unit. Chair Co plans on pricing the seat by adding a 50% mark-up to the total variable cost per seat, with the labour cost being based on the incremental time taken to produce the 8th unit.
Chair Co uses cost-plus pricing.
a. Which of the following statements regarding cost-plus pricing strategies are correct?
(1) Marginal cost-plus pricing is easier where there is a readily identifiable variable cost
(2) Full cost-plus pricing requires the budgeted level of output to be determined at the outset
(3) Cost-plus pricing is a strategically focused approach as it accounts for external factors
(4) Cost-plus pricing requires that the profit mark-up applied by an organisation is fixed
A. (1), (2) and (4)
B. (1) and (2) only
C. (3) and (4)
D. (1) and (3)
b. Explain your answer
May 23, 2021 at 2:43 pm #621537Please do not simply type out full questions and expect to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about what you are not clear about in the answer then I will explain.
The answer is B and you can find explanations in my free lectures. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
May 24, 2021 at 2:40 am #621564Thank you!
May 24, 2021 at 6:56 am #621578You are welcome 🙂
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