Calculate the anticipated profit for the order of 75,000 chairs by using marginal costing. (Note that a full statement of profit or loss is not required)
Briefly describe all the steps required to calculate a full cost using absorption costing.
Prepare a statement of profit or loss for Patel Ltd for the year ended 30 June 2019 using absorption costing, assuming budgeted fixed overheads are equal to the actual fixed overhead. Explain how net profit figures are different under marginal and absorption costing. All workings must be clearly shown.
The senior management team is considering adopting a cost-plus pricing approach to improve Patel’s financial performance, which is to calculate the price based on cost plus a mark-up of 30%. Yet the management team is uncertain whether price should be based on full cost or marginal cost. Your line manager asked you to:
Explain the difference between mark-up and margin in cost-plus pricing.
Calculate the price based on full-cost plus and marginal-cost plus, provided that budgeted sales and production units, costs and expenditures remain constant.
State THREE advantages and THREE disadvantages of the company’s intended pricing approach.