ACCA Applied Skills · Performance Management · Pricing decisions
Marlow Ltd makes a product with a variable cost of $18 per unit. Fixed overheads are $90,000 and are absorbed on a budgeted volume of 15,000 units. Marlow wants a profit margin of 20% on selling price using full cost-plus pricing. What is the selling price per unit?
The selling price is $30. Full cost is $18 variable plus $6 fixed overhead, which is $24. Because the 20% profit is a margin on selling price, cost represents 80% of price, so price equals $24 divided by 0.8.
- A$30.00Correct
- B$28.80
- C$24.00
- D$25.00
Explanation
Fixed overhead per unit = $90,000 / 15,000 = $6, so full cost = $18 + $6 = $24. A 20% margin on selling price means cost is 80% of price, so price = $24 / 0.8 = $30. $28.80 applies a 20% mark-up on cost ($24 × 1.2), which uses the wrong base. $25 is not derived from either method.
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