LMVH Corp is in the process of establishing selling prices for two of its new products: A bag and B bag which the company is newly introducing in the market. Both the products will be manufactured at their new factory in Bangladesh which aims to earn a profit of 20% on its capital employed.

The estimated data for the two bags is as follows:

Particulars	A bag	B bag
Estimated Annual demand (units)	100,000	200,000
Direct materials cost per unit	$15.00	$14.00
Direct labour cost per unit (Direct labour rate per hour: $3.00)	$9.00	$6.00

The amount of manufacturing overheads for each product equal to the total amount of direct labour cost for the respective products. It is also noted that 50% of manufacturing overheads are fixed in nature. Administration overheads amount to $330,000 per annum for product A and $520,000 per annum for product B. Variable selling expenses amount to $1.50 per unit of A bag and $2.00 per unit of B bag. Fixed selling expenses amount to $150,000 per annum for A bag and $400,000 per annum for B bag. The total capital employed by the factory in Bangladesh amounts to $10,225,000.

Required:

1. As an expert on cost analysis help LMVH Corp to determine a minimum selling price for the introduction phase of the two products so that the company can quickly gain market share. Briefly explain this pricing strategy.

2. Help LMVH Corp determine the long-term selling prices for A bag and B bag such that the contribution per direct labour hour is the same for both the products.

3. Determine break-even points in units and sales value for A bag and B bag based on the selling prices you arrived at in requirement (b) above. Also, determine the margin of safety in units and sales value for A bag and B bag based on the estimated demand and the selling prices you arrived at in requirement (b) above.

(3.5 + 10.5 + 6 = 20 Marks)