In an attempt to win over key customers in the motor industry and to increase its market share, BIL Motor Components plc has decided to charge a price lower than its normal price for component TD463 when selling to the key customers who are being targeted.

Details of component TD463's standard costs are as follows:

Component TD463

Batch size 200 units

Machine G1

RM

Machine G7

RM

Machine G29

RM

Assembly

RM

Materials (per unit)

26.00

17.00

-

3.00

Labour (per unit)

2.00

1.60

0.75

1.20

Variable overheads (per unit)

0.65

0.72

0.80

0.36

Fixed overheads (per unit)

3.00

2.50

1.50

0.84

31.65

21.82

3.05

5.40

Set-up costs per batch

10.00

6.00

4.00

-

Required:

Compute the lowest selling price of a batch of 200 units, and critically evaluate the adoption of such a pricing policy.