The following information relates to Windhoek Play Centre (“WPC”) a company that manufactures children's toys and PlayStations. The company has developed an exciting PlayStation called the WiKi Players and wants to introduce it to the market. The budgeted production costs are as follows: Standard cost N$ Direct materials 360 Direct labor 210 Manufacturing overheads 315 Total manufactured cost per unit 590 60% of the manufacturing overhead is variable. Variable distribution costs are estimated to be N$120 per unit, while sales commission and the discount will be 10% of the selling price. Based on forecast sales of 3 000 units per year, fixed selling and administrative costs of N$540 000 will be allocated to the WiKi Players. WPC has invested N$825 000 in new equipment for the product and incurred market research costs of N$150 000. The average net working capital for the product is expected to be N$75 000. WPC requires new products to provide a return on capital employed of at least 18%. 

Required

1 Assume that the firm uses the absorption approach to cost-plus pricing. 1.1.1 Calculate the mark-up that is needed to achieve 18% ROCE. 9 9 1.1.2 Using this mark-up, calculate the selling price for one WiKi Players. 2 11 1.1.3 Assuming that all of the WiKi Players that can be produced can be sold at the price calculated in (1.1.2), prepare a profit statement for WiKi Players for the first year of production.

1.2 Assume that the company uses the contribution approach to cost-plus pricing.

1.2.1 Calculate the mark-up that is needed to achieve 18% ROCE. 9 27

1.2.2 Using this mark-up, calculate the selling price for one WiKi Players. 2

1.2.3 Assuming that all of the WiKi Players that can be produced can be sold at the price calculated in (1.2.2), prepare a profit statement for WiKi Players for the first year of production.