Innovative Computers Pty Ltd began manufacturing inexpensive computers for the student market on 1 July 2018. The variable costs of manufacturing each computer are as follows.

During the year ended 30 June 2019, the following fixed costs were incurred.

At the end of the year there was no work in process and 10 000 computers had been produced and sold during the year. Inventory was costed at the average cost of production per computer. The computers were priced so that a profit mark‐up of $300 over manufacturing costs was obtained from each computer sold.
Required

(a) Determine the selling price of each computer over the past year.

(b) Innovative Computers Pty Ltd wants to increase sales by 25% in the next year. Management is not sure whether to increase the price of the computers by up to 25%, keep the price the same, or even reduce the price. Assuming that the policy of a $300 mark‐up on cost will continue, decide on a price to recommend to the managers of Innovative Computers Pty Ltd.

Direct materials Direct factory labour Variable factory overhead $120 10 20