ACCY 211 – Tut HW Week 7

7.1

Market based pricing is based on what customers want and how competitors react. The pricing
includes customers’ perceived value on an entity’s output and how competitors are likely to price
competing outputs. Whilst cost based pricing is based on what it costs to produce, coupled with the
ability to recoup the costs and still achieve a required rate of return

7.13

1. Organix should only charge for the hard cheese is the cost per kilo as they can acquire all the
special milk it needs. Therefore = 20+6+4 = $30/kg

2. Organix should consider demand for their soft cheese, which uses the same milk. DO they have
sufficient capacity to fill this order in addition to their usual orders for soft cheese? They should also
consider any relevant fixed production costs that might change as they approach capacity.

3. If milk is in short supply, then each kilo of hard cheese displaces 2.5 kilos of soft cheese (10L of
milk per kilo of hard cheese versus 4 litres of milk per kilo of soft cheese). Then, for the hard cheese,
the minimum price that should be charged is the variable cost per kilo of hard cheese plus the
contribution margin from 2.5 kilos of soft cheese, or $30+(2.5*$8) = $50/kg

8.7

The differences are in the accuracy and complexity of the two methods. Traditional costing is more

simplistic and less accurate than ABC, and typically assigns overhead costs to products based on an
arbitrary average rate. ABC is more complex and more accurate than traditional costing.

8.20

1
Direct Costs
Particulars Basic Deluxe Total
Forming Department
Direct Materials 60,000 35,000 95,000
Direct Manufacturing Labor 30,000 20,000 50,000
Assembly department
Direct Materials 5,000 10,000 15,000
Direct Manufacturing Labor 15,000 25,000 40,000
Total of Direct Costs 110,000 90,000 200,000

Overhead Costs
Particulars Amount
Forming department
Overhead Costs
Set up 48,000
General Overhead 32,000
Assembly Department
General Overhead 40,000