Reference no: EM132533640

RRB board is considering entering the business advisory service and there has been much discussion regarding how much an RRB business advisor should charge per hour of service. RRB has budgeted to supply 200,000 hours of business advisory service for the forthcoming year. Its variable cost is estimated at $21 per hour and its fixed costs are estimated at $300,000 for the forthcoming year. The board has been discussing whether to use a cost-plus approach or perhaps examining the demand levels. The marketing department has the following information on demand levels at different prices:

Required

Question a) Calculate the price per hour RRB should charge based on a cost-plus approach for pricing the service at full cost plus 20%.

Question b) Considering RRB can meet any demand level in Table and that fixed costs will remain unchanged for all the preceding demand levels, what price per hour should RRB charge?

Price per hour Demand in hours

$25.                220,000

$26                 200,000

$27                 180,000

$28.                170,000

$29                  140,000

Question c) Explain whether the different approaches lead to a different or identical price per hours and which approach should RRB board choose for the business advisory service.