DK manufactures three products, W, X and Y. Each product uses the same materials and

the same type of direct labour but in different quantities. The company currently uses a cost

plus basis to determine the selling price of its products. This is based on full cost using an

overhead absorption rate per direct labour hour. However, the managing director is

concerned that the company may be losing sales because of its approach to setting prices.

He thinks that a marginal costing approach may be more appropriate, particularly since the

workforce is guaranteed a minimum weekly wage and has a three month notice period.

Required:

a) Given the managing directors concern about DKs approach to setting selling prices,

discuss the advantages and disadvantages of marginal cost plus pricing AND total

cost-plus pricing.