Ming Cycles Ltd makes a range of cycles and is interested in expanding to making electrical cycles (E bikes) which have a motor as well as pedal power to assist with hill climbing etc. As well as the motor the specifications of the bicycle will need to be more robust than their current bikes. They are looking at the commuting and shopping customer rather than mountain bikers etc.

Consumer survey and price comparisons has indicated that customers would be prepared to pay 1,200 per bike retail. The retailer normally expects a 20% profit on sales price

The company wishes to make 25% profit on full cost

The following costs have been estimated: The Electric motor will cost 180.

The Cycle frame is bought from an outside supplier. The normal frame costs 80 but the supplier considers that the strengthening specification will cost an additional 15% on the normal price.

Pedals and other accessories are made in house. The standard cost of these is

40.

The assembly, painting and finishing should be costed at the ABC costs used in the company as follows:

Activity

Assembly 45per hour 3 hours needed

Painting 20 per hour 1 hour needed

Finishing 35 per hour 2 Hours needed

Marketing and selling commission are charged at 50 per unit + 10% of sales price to the retailer (paid to the salesman)

Administration is charged based on production hours at 50 per hour. It is planned that 50,000 would be sold in the first month

Required:

Provide a cost calculation and target price for the E-Bike.