Exam 13: Pricing and Costs

A drinks factory has spare capacity and is considering taking on a special order of 50,000 bottles. It usually charges 54p per bottle to recover its overheads. If its variable costs are £6.80 and it will incur distribution costs of £300 for every 1,000 bottles, what is the minimum price it should charge?

A company has two divisions: one making components and the other electrical goods. The component division sells a heating ring to the electrical goods division to make kettles but this division can buy a similar component from an outside supplier for £12. The costs of a heating ring made by the component division include a variable cost of £8 and an allocation of overhead costs of £5. If there is spare capacity in the component division, what should the transfer price be?

A camera will be priced at £300. What will its target cost of sales need to be if the retailer takes a 40% sales margin and the manufacturer, a 30% sales margin?

What is the best definition of a penetrating price strategy?

When applying life-cycle costing in setting prices, what factors need to be taken into account?

What is the best definition of a price skimming strategy?

What is the most appropriate definition of target costing?

A manager is setting the price of a product. He is considering either using a 12% sales margin or 15% cost mark-up method. What would the selling price be, if his cost of sales is £45?

A company has two divisions: one making components and the other electrical goods. The component division sells a heating ring to the electrical goods division to make kettles but this division can buy a similar component from an outside supplier for £12. The costs of a heating ring made by the component division include a variable cost of is £8 and an allocation of overhead costs of £5. If the component division is operating at full capacity and can sell the heating ring to an external customer, what should the transfer price be?

What is price elasticity?