Calculate the aimed profit percentages

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Reference no: EM13213939 , Length: 300 WORDS

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

Reference no: EM13213939

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