In business, companies should consider the right pricing strategies to maximise their sales and profits. However, at an early stage, the companies must set the correct prices for their products. Among crucial factors, costs may influence the companies' pricing decisions. Thus, for the pricing decisions purposes, many companies use the simple cost-plus method.

Required:

a. Discuss briefly two (2) common pricing strategies that the companies may adopt.

b. Avenger Toy Shop produces and sells children's toys such as puzzles and tents which help the development of young minds. The shop plan to produce and sell a new toy, Knitted Baby Rattle for their new target customers. The estimated production costs are as follows:

Two types of materials are required to produce a new toy, Direct and Indirect Materials. Costs of Direct Materials is RM3 per meter while Indirect Materials cost RM4 per meter. Each unit toy uses two (2) meters of Direct Materials and four (4) meters of Indirect Materials.

The Labour cost per unit is RM12.

Overhead costs are RM10 per unit.

Based on a market survey, competitors sell this product at a selling price of RM50. The new toy's target return on sales is 20%.

i. Determine the target cost per unit of the toy

ii. Calculate the cost gap per unit of the toy.