Pricing Mendoza MV

Items 1 to 3. Fairly co. incurs these costs in producing and selling 5,000 units of
product Nice :
Production
Variable ( material, labor, overhead ) P7
Fixed 3
Selling and administrative
Variable 1
Fixed 2
1. What must be the selling price of Product Nice, if Fairly Co. uses the Absorption
to cost-plus pricing and desires a 40% mark up?
a. P 16 b. P 14 c. P 16.80 d. P 18.20

2. Assume for this question only the company uses the direct cost approach to cost plus
pricing and desires a sales price of P 14.00, what is mark up percentage?
a. 40% b. 43% c. 75% d. 46%

3. Assume for this question only, the company will use ROI pricing and desires a
20% mark up, what will be the estimated sales price if the Company’s total
investment in assets is P 500,000?
a. P 33.00 b. P 35.60 c. P 15.60 d. P 133.00

4. Matibay Corporation aims to earn a 25% return on its P500,000 investment in assets. Based
on the estimated sales of 10,000 units of FX next year, the costs/unit were estimated as follows:
Variable manufacturing costs…………………. P25
Fixed selling and administrative costs………… 10
Fixed manufacturing costs…………………….. 5
FX should be priced at
a. P52.50 b. P56.00 c. P50.00 d. P 55.00

Items 5-6. Dexter, Inc., which manufactures various lines of computer equipment, is planning to
introduce a new line of laptops. Current plans call for the production and sale of 1,000 units,
with estimated production costs as follows:
Variable costs:
Manufacturing P450,000
Selling and administrative 100,000
Total variable costs P 550,000
Fixed costs:
Manufacturing P300,000
Selling and administrative 180,000
Total fixed costs 480,000
Total costs P1,030,000
The average amount of capital invested in the laptop product line is P900,000 and Dexter's
target return on investment is 18%.
5. What price must Dexter charge if the company uses ROI pricing method?
A. P868. C. P1,000.
B. P900. D. P1,192.

6. If Dexter uses cost-plus pricing based on absorption cost and they decide to use unit
sales price as a result of ROI ( item 5 above) the markup percentage the company must
use would be:
A. 15.72%. C. 29.56%.
B. 21.64%. D. 58.93%.

7
Additional Problems

1. Maltiss Co. makes and sells a new kind of product averaging 14,000 units at P 65 per
unit. Costs data follow:

Direct Material P 15 Variable Overhead P 9

Direct Labor 13 Fixed Overhead 8

Annual fixed administrative and selling expenses P 65,000 while variable selling is P 8 per
unit. Sales depend mostly on customers traveling along road in front of the store, but
because of road construction which will take three months to complete, sales are expected
to go down to only 1,200 units during the construction, hence management plans to close for
3 months and avoid 60% of all fixed costs but additional P 10,500 shutdown costs will be
incurred for security. Do you agree with management? Compute also for Shutdown Point.

2. Nida Co. has 2,000 units obsolete inventory items carried at cost of P 30,000. If the these
items are subject to rework amounting to P 10,000, they can be sold for P 18,000.
Alternatively, these can be sold as is to a jobber for P 3,000. In a decision model of analyzing
relevant costs, How much will the opportunity cost?

3. In question No. 2 if the Company will choose to sell to a jobber, how much will be
opportunity cost to Nida?

End of 8 pages