Fun T-shirts Ltd (Fun), a subsidiary company of Well Dressed Ltd (Well Dressed), manufactures t-shirts and is considering revising its pricing policy. In the past, a target return on investment method has been used to price the goods. When Well Dressed decided to set up Fun, they provided an investment of 1m and 200,000 of working capital. In return, Well Dressed required a return of 10%. Each t-shirt costs 3 to make in terms of raw materials and 1 in terms of labour. Fixed production costs relating to machinery are 25,000 per month. Fun usually produces 10,000 t-shirts in a month. Fun sells the t-shirts online, so there are fixed costs associated with the website and its maintenance of 30,000 per year. To make sure that the t-shirt designs are up to date, Fun also has a design team as part of the production department who have a combined salary of 60,000 per year. The proposed new pricing policy would be to price the t-shirts at marginal cost plus a mark-up of 100% or at full production cost plus a mark-up of 25%. Overheads would be absorbed based on units produced.

Required: 1. Calculate the current price per t-shirt, using the return on investment method of pricing. 2. Calculate the price for each item if the proposed new marginal cost pricing policy is applied, and if the new full production costing method is applied. 3. Calculate the monthly net profit made under each of the three pricing options, and determine which strategy would be the most profitable. Assume that Fun will be able to sell all the t-shirts that they produce.