A computer manufacturer produces three types of devices:mobile phones, tablets, and computers. For the production of these three devices you have the following information:
|
Phone
|
Tablet
|
Computer
|
|
|
Material cost per unit
|
£90
|
£140
|
£315
|
|
|
Direct labor hours per unit
|
2
|
2.5
|
4
|
|
|
Budgeted units
|
1,500,000
|
900,000
|
1,200,000
|
|
|
|
|
|
|
|
Labor cost per hour
|
£8
|
|
|
|
|
Overhead costsper annum
|
|
|
Utilities
|
£20,000,000
|
|
|
Rent
|
£15,000,000
|
|
|
Audit and legal
|
£5,000,000
|
|
|
Administrative staff
|
£40,000,000
|
|
|
Total
|
£80,000,000
|
|
ABC analysis suggested that overhead costs are distributed to the three products according to the table below:
|
Overheads
|
Phone
|
Tablet
|
Computer
|
|
Utilities
|
£8,000,000
|
£5,000,000
|
£7,000,000
|
|
Rent
|
£8,250,000
|
£2,250,000
|
£4,500,000
|
|
Audit and legal
|
£2,900,000
|
£1,250,000
|
£850,000
|
|
Administrative staff
|
£23,200,000
|
£6,000,000
|
£10,800,000
|
For each of the three products, the company aims at a different percentage for profit. Under the full absorption costing method and the targeted profit percentage, the prices of the three products should be:
|
Phone
|
Tablet
|
Computer
|
|
Full costing price
|
£170.69
|
£233.87
|
£435.67
|
1. Calculate the aimed profit percentages for the three products and under the full absorption costing method, with overhead costs absorbed on the basis of direct labour hours.
2. Use the profit percentages that you derived in (1) and calculate the prices of the three products under the ABC system.
3. Recommend a cost system and include any changes that you would suggest to the pricing strategy of the computer company