ABC Limited manufactures high quality copper pots and pans. Company’s management accountant is involved in setting price for the company’s new Starter Set. This set consist of seven of the most commonly used pots and pan. During the next year, the company plans to manufacturer 10,000 Starter Sets. The management accountant gathered the following information regarding the cost of developing 10,000 Starter Set.

Variable Costs:

Manufacturing $75,000

Sales Commission $15,000

Total Variable Cost $90,000

Fixed Cost Allocated

Manufacturing $25,000

Total Fixed Cost $25,000

Total Cost $115,000

Management decided that the required markup is 40%.

Required:

1. What is the management accountant’s role in setting price of a new product? (5 marks)

2. Discuss the factors that management need to consider while setting the price of the new Starter Set. (5 marks)

3. Determine the selling price if the company decides to use absorption cost. (5 marks)

4. Determine the selling price if the company decides to use total variable cost. (5 marks)

5. Write an essay explaining to the management of ABC Limited, the impact of pricing strategies on business profitability and success.