(6 marks) TIE Industries makes starfighters for the Galactic Empire while ILM makes X- wing fighters for the New Republic. Smaller manufacturers make similar craft as well as custom starcraft. The major reseller of starcraft is WalStar GLC (Galacticly Limited Company). Both TIE and ILM spend heavily on advertising and each year come out with new versions of their top models.

A starfighter is expensive. Each one costs 32 billion galactic credits (BGs). in material plus 54 BG in labour. Another 10 BG in indirect production costs is charged to each starfighter.

Production this year is expected to be 500,000 starfighters and each one will sell for 150 BG.

Required

a) (2 marks) TIE is owned by the Toyardians. The Board of Directors has asked you to discuss which approach to pricing they should use and why.

b) (4 marks) TIE wants to make a 36% margin on sales. Prior to starting production for the new year, disruptions in the supply of Unobtainium have caused material prices to increase to 36 BG for each starfighter. Calculate the new price TIE must charge to maintain its contribution margin percentage.