GOING RATE PRICING/ MARKET BASED PRICING:

1. (2018) SL LTD, budgets to make 1,00,000 units of a product . The finance director has suggested
that the cost plus approach should be used with a profit mark up of 25% . however the
marketing director disagreed & has supplied the following information

Price per unit (Rs) Demand (units)

18 84000
20 76000
22 70000
24 64000
26 54000

As a management accountant of the company analyse the above proposal & comment.
2.(2017) Hitech ltd makes two products use the same labour force , the size of which is
restricted to 38000 hour per month .
‘CROWN’ needs 2 hour per unit to make where as ; ‘PEAK’ needs 1 hour .The estimates
manufacturing & selling expenses are as follows :

Production & CROWN PEAK

sales
No’s per month 6000 8000 20000 24000
Costs per 8,50,000 10,50,000 16,00,000 18,40,000
month (Rs)
The company is considering pricing options in a highly competitive market .it has estimated sales
demand as various selling price as under

CROWN PEAK

Selling price per unit Sales demand per Selling price per unit Sales demand per
(Rs) month month
138 6000 81.50 20000
136 7000 81.00 21000
134 8000 80.50 21000
132 9000 80.00 23000
130 10000 78.00 24000
127 11000 76.00 25000
Required

a. What would be the profit maximising selling price & mostly sales quality for each product , if
direct labour was available in unlimited supply ?
b. Given the restriction of 38000 hour per month ,what is the profit maximising sales price &
quality for each product ?

3 . ABC ltd has developed a new product which is about to be launched into the market .The
variable cost of selling the product is Rs. 17 per unit .The marketing department has estimated
that at a sales price by annual demand would be 10,000 units .however ,if the sales price is set
above Rs. 25 sales demand would fall by 500 units for each Rs.0.50 increase above
Rs.25.similarly , if the price is below Rs. 25 ,demand would increase by 500 units for each
Rs.0.50 stepped reduction in price below Rs.25
Required :determine the price which would maximise ABC ltd profit in the next year.
 4. The news paper publication is to commence publication of a week leaflet .They have
ascertained that the printing cost will be as follows

No .of copies 5000 6000 7000 8000 9000

Cost (Rs) 1200 1440 1662 1840 1900

Additional cost will be 10 paise delivery cost for each copy ordered & 15% commission payable
on each copy sold. Any unsold copies are considered as worthless .The management has not yet
decided as a selling price for the leaflet & has ascertained the demand will be as follows the
following prices:

Prices (p) Demand

55 9000
60 8000
65 7000
70 6000
75 5000

a. Calculate the number of copies that the management should order & the selling price that is
should set
b. Assuming that 9000 copies has been ordered & the selling price set as 65 paise . Advice the
management whether to accept the up country order at 25 paise copy for 2000 copies .
(demand is expected to be fall by 10% as a result of accepting the offer)

DIFFERENTIAL COST PRICING:

1. A company is not at present working at 90% of its capacity & producing 13500 units per
annum. It operates a flexible budgetary control system . The following figures are obtained
from its budget :

Particulars 90% 100%

Sales 15,00,000 16,00,000
Fixed expenses 300500 300500
Semi : fixed expenses 97500 100500
Variable expenses 145000 149500
Units made 13500 15000
Labour & material cost per unit are constant under the present conditions profit margin is
10% (on sales)
a. You are required to determine the differential cost of producing 1500units by increasing
capacity to 100%
b. What would you recommend for an export price for these 1500 units taking into account
the overseas prices are much lower than indigenous prices .

2. Somesh of Agra presently operates its plant at 80% the normal capacity to manufacturing
product only to meet the demand of government of tamilnadu under rate contract.
He supplies the product for Rs.4,00,000 & earns a profit margin of 20% on sales realisation .
Direct cost per unit is constant.
The indirect cost as per his budget projections are:

Indirect cost 20,000 units (80% 22500 units (90% 25000 units
capacity ) capacity) (100%capacity)
Variable 80000 90000 100000
Semi variable 40000 42500 45000
fixed 80000 80000 80000

He has received an export order for the product equal to 20% of the present operations.
Additional package charges on this order will be 1000
Arrive at the price to be equal to be quoted for the export order to give him a profit margin
of 100% on export price.