Question

1. As the marketing manager for Fast Fones Industries Pty Ltd you have asked the accountant what it costs to make the FFI2020 model as you want to set a price for the phone. A similar phone produced by a competitor sells for $420. Your usual pricing policy is to set the price of phones at the cost of manufacturing plus 100% mark-up.

The accountant has given you the following costs:

Direct materials Direct labour Factory overhead per phone if allocated on direct labour hours Factory overhead per phone if allocated on labour costs Factory overhead per phone if allocated on machine hours

$192 3 16 20 10

Required

Calculate the cost and the price of the FFI2020 using each of the factory overhead rates that the accountant has supplied. How do the different allocation methods for factory overhead affect the pricing of the FFI2020 compared to the price of the competition and what are the likely implications of this for the marketability of the phone?

Answer 1