QUESTION
The Chief Financial Officer and Marketing Director of NK International are discussing three approaches to pricing their products, namely cost based, customer based and competition based. The company budgets to make 25,000 units per year which has a variable cost of production of K55 per unit. Fixed production cost are K600, 000 per annum. The Chief financial Officer has recommended the cost based approach and state that if the selling price is to be 35% higher than full cost the company will maximize its profit. Required
a) Determine the selling price of the product using the full cost-plus method and discuss which of the pricing approaches discussed is most likely to maximize profits for NK international.
b) With the aid of diagrams, explain the difference between fixed costs, semi-variable costs, stepped fixed cost and variable cost.
c) Explain the usefulness of a budget to a Manager in an organization.
