a) Compare and contrast variable cost-plus pricing and target pricing, and indicate the circumstances in which each might be appropriate.b) Compute the selling price based on the compay’s pricing policy and indicate whether the customer’s maximum price is consistent with the company’s pricing policy.c) Assume that further tests have confirmed the product’s useful life, and that SA Berhad wishes to maximise profits by reducing costs. Indicate techniques which could be used to achieve a reduction in the product cost.d) Define Business Process Re-engineering (BPR). QUESTION 1SA Berhad produces packing material s used in bagging system. The company has developed anew material which will reduce the packing time for grocery stores. It is hoped that theresulting fall in costs will make the product attractive to large grocers. However initialcustomer trials have indicated that customers are concerned that the product's effective life willbe shorter than that of the traditional products which it is intended to replace.One potential customer has agreed to use the product for a trial period. This customer will notpay more than RM45.00 per kg, and requires 10,000 kg per month. It has been agreed that thiswill be ordered in batches of 250 kg.SA Berhad uses a variable cost-plus approach to pricing, and adds 50% margin to variable costto calculate selling price. Activity based costing is used to calculate overheads.It has been suggested that the company should use a target cost approach to pricing for thisproduct.You have been asked to consider the company's options and to report back to the managementteam.The following information has been collected:Product Costs:RM8.00 per kg producedRM9.00 per kg producedMaterialsLabourYou have estimated that each 200 kg produced will require four deliveries of raw materials, andeight machine hours.Company Overheads:Machine runningMaterials handlingOrder processingRM276,250 per yearRM118,500 per yearRM390,000 per yearActivity levels (for the company)5,000 per year2,000 per year3,000 per yearMachine hoursMaterials deliveriesCustomer ordersAll computations are to be rounded up to its nearest 2 decimal point.

Variable costingThe variable costing method estimates the cost of the product by considering only…

a) Compare and contrast variable cost-plus pricing and target pricing, and indicate the circumstances in which each might be appropriate. b) Compute the selling price based on the compay’s pricing policy and indicate whether the customer’s maximum price is consistent with the company’s pricing policy. c) Assume that further tests have confirmed the product’s useful life, and that SA Berhad wishes to maximise profits by reducing costs. Indicate techniques which could be used to achieve a reduction in the product cost. d) Define Business Process Re-engineering (BPR).

a) Compare and contrast variable cost-plus pricing and target pricing, and indicate the circumstances in which each might be appropriate. b) Compute the selling price based on the compay’s pricing policy and indicate whether the customer’s maximum price is consistent with the company’s pricing policy. c) Assume that further tests have confirmed the product’s useful life, and that SA Berhad wishes to maximise profits by reducing costs. Indicate techniques which could be used to achieve a reduction in the product cost. d) Define Business Process Re-engineering (BPR).

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 17E

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