20 Norbury plc has just completed its first year of trading.

The following information has been

collected from the accounting records:
£
Variable cost per unit
Manufacturing 6.00
Selling and administration 0.20
Fixed costs
Manufacturing 90,000
Selling and administration 22,500
Production was 75,000 units and sales were 70,000 units. The selling price was £8 per unit
throughout the year.
Calculate the net profit for the year using absorption costing.
A £13,500
B £19,500
C £21,000
D £22,500 LO 1c

44 Management Information: Question Bank ICAEW 2019

Chapter 5: Pricing calculations
1 Product X is produced in two production cost centres. Budgeted data for product X are as
follows:
Cost centre A Cost centre B
Direct material cost per unit £60.00 £30.30
Direct labour hours per unit 3 1
Direct labour rate per hour £20.00 £15.20
Production overhead absorption rate per direct labour £12.24 £14.94
hour
General overheads are absorbed into product costs at a rate of 10% of total production
cost.
If a 20% return on sales is required from product X, its selling price per unit should be
A £271.45
B £282.31
C £286.66
D £298.60 LO 1e

2 A company manufactures two products for which budgeted details for the forthcoming
period are as follows:
Product L Product T
£ per unit £ per unit
Materials 6.00 9.00
Labour (£15 per hour) 30.00 22.50
Production overhead of £61,200 is absorbed on a labour hour basis. Budgeted output is
4,000 units of product L and 6,000 units of product T.
The company adds a mark up of 20% to total production cost in order to determine its unit
selling prices.
The selling price per unit of product L is
A £47.52
B £51.84
C £54.00
D £61.56 LO 1e

ICAEW 2019 Chapter 5: Pricing calculations 45

 3 Print Ltd manufactures ring binders which are embossed with the customer's own logo. A
customer has ordered a batch of 300 binders. The following data illustrate the cost for a
typical batch of 100 binders:
£
Variable materials 30
Wages (paid on a per binder basis) 10
Machine set up (fixed per batch) 3
Design and artwork (fixed per batch) 15
58

Print Ltd absorbs production overhead at a rate of 20% of variable wages cost. A further 5%
is added to the total production cost of each batch to allow for selling, distribution and
administration overhead.
Print Ltd requires a profit margin of 25% of sales value.
The selling price for a batch of 300 binders should be
A £189.00
B £193.20
C £201.60
D £252.00 LO 1e

4 A firm makes special assemblies to customers' orders and uses job costing.
The data for a period are:
Job A Job B Job C
£ £ £
Opening work in progress 26,800 42,790 0
Material added in period 17,275 0 18,500
Labour for period 14,500 3,500 24,600
The budgeted overheads for the period were £126,000 and these are absorbed on the
basis of labour cost.
Job B was completed and delivered during the period and the firm wishes to earn a 33 1/3%
profit margin on sales.
What should be the selling price of job B?
A £69,435
B £75,523
C £84,963
D £258,435 LO 1e

46 Management Information: Question Bank ICAEW 2019

 5 Halcow Ltd operates a job costing system and its standard net profit margin is 20% of sales
value.
The estimated costs for job 173 are as follows:
Direct materials 5 metres @ £20 per metre
Direct labour 14 hours @ £8 per hour

Variable production overheads are recovered at the rate of £3 per direct labour hour.
Fixed production overheads for the year are budgeted to be £200,000 and are to be
recovered on the basis of the total of 40,000 direct labour hours for the year.
Other overheads, in relation to selling, distribution and administration, are recovered at the
rate of £80 per job.
The selling price to be quoted for job 173 is
A £404
B £424
C £485
D £505 LO 1e

6 An item priced at £90.68, including local sales tax at 19%, is reduced in a sale by 20%.
The new price before sales tax is added is
A £58.76
B £60.96
C £72.54
D £76.20 LO 1e

7 Three years ago a retailer sold electronic calculators for £27.50 each. At the end of the first
year he increased the price by 5% and at the end of the second year by a further 6%. At the
end of the third year the selling price was £29.69 each.
The percentage price change in Year 3 was a
A 2.7% decrease
B 3.0% increase
C 3.0% decrease
D 3.4% decrease LO 1e

ICAEW 2019 Chapter 5: Pricing calculations 47

 8 At a sales tax rate of 12%, an article sells for £84, including sales tax.
If the sales tax rate increases to 17.5%, the new selling price will be
A £75.00
B £86.86
C £88.13
D £88.62 LO 1e

9 A greengrocer sells apples either for 45p per kg, or in bulk at £9 per 25 kg bag.
The percentage saving per kg from buying a 25 kg bag is
A 9%
B 11.25%
C 20%
D 25% LO 1e

10 A skirt which cost a clothes retailer £50 is sold at a profit of 25% on the selling price.
The profit is therefore
A £12.50
B £16.67
C £62.50
D £66.67 LO 1e

11 Sunita sells an item for £240 on which there is a mark-up of 20%.

What profit was made on this transaction?
A £40
B £48
C £192
D £200 LO 1e

48 Management Information: Question Bank ICAEW 2019

 12 A company calculates the prices of jobs by adding overheads to the prime cost and then
adding 30% to total costs as a profit mark up. Job number Y256 was sold for £1,690 and
incurred overheads of £694.
What was the prime cost of the job?
A £489
B £606
C £996
D £1,300 LO 1e

13 A company prices its product at the full cost of £4.75 per unit plus 70%. A competitor has
just launched a similar product selling for £7.99 per unit. The company wishes to change
the price of its product to match that of its competitor.
The product mark up percentage should be changed to
A 1.1%
B 1.8%
C 40.6%
D 68.2% LO 1e

14 Details from a retailer's records concerning product D for the latest period are as follows.
£
Sales revenue 60,000
Purchases 40,000
Opening inventory 12,000
Closing inventory 2,000
The profit margin for product D is
A 16.7%
B 20.0%
C 33.3%
D 50.0% LO 1e

15 The following data relate to the Super.

Material cost per unit £15.00
Labour cost per unit £52.05
Production overhead cost per machine hour £9.44
Machine hours per unit 7
General overhead absorption rate 8% of total production cost
The capital invested in manufacturing and distributing 953 units of the Super per annum is
estimated to be £136,200.

ICAEW 2019 Chapter 5: Pricing calculations 49

 If the required annual rate of return on capital invested in each product is 14%, the selling
price per unit of the Super must be
A £102.62
B £153.14
C £163.79
D £163.91 LO 1e

16 A product's marginal costs are 60% of its fixed costs. Selling prices are set on a full cost
basis to achieve a margin of 20% of selling price.
To the nearest whole number, which percentage mark up on marginal costs would produce
the same selling price as the current pricing method?
A 67%
B 108%
C 220%
D 233% LO 1e

17 A company determines its selling prices by adding a mark up of 100% to the variable cost
per unit.
If the selling price is increased by 50%, the quantity sold each period is expected to reduce
by 40% but the variable cost per unit will remain unchanged.
Which of the following statements is correct?
A The total revenue will increase and the total contribution will increase.
B The total revenue will increase and the total contribution will decrease.
C The total revenue will decrease and the total contribution will increase.
D The total will decrease and the total contribution will decrease. LO 1e

18 The following information is available for the latest period.

Fixed costs £160,000
Variable cost per unit £4
Profit £10,000
A 2% increase in selling price would not alter the number of units sold each period but the
profit would increase by £5,000.
The current selling price per unit is
A £0.08
B £10.00
C £12.50
D £12.75 LO 1e

50 Management Information: Question Bank ICAEW 2019

 19 A contract is agreed between a supplier and a buyer. The contract will take four weeks to
complete and the price to be charged will be agreed upon at the point of sale as the actual
costs incurred plus an agreed percentage mark up on actual costs. The buyer is to be
granted four weeks credit from the point of sale.
Which of the following best describes how the risk caused by inflation will be allocated
between the supplier and the buyer?
A The supplier and the buyer will each bear some of the inflation risk but not necessarily
equally.
B The supplier and the buyer will each bear equal amounts of the inflation risk.
C Only the supplier will bear the inflation risk.
D Only the buyer will bear the inflation risk. LO 1e

20 Which of the following statements is correct?

A A cost-plus pricing method will enable a company to maximise its profits.
B A selling price in excess of full cost will always ensure that an organisation will cover all
its costs.
C The percentage mark up with full cost plus pricing will always be smaller than the
percentage mark up with marginal cost-plus pricing.
D Since it is necessary to forecast output volume to determine the overhead absorption
rate, full cost-plus pricing takes account of the effect of price on quantity demanded.
LO 1e

21 The following data relate to Bailey plc, a manufacturing company with several divisions.
Division X produces a single product which it sells to division Y and also to external
customers.
Sales to division Y External sales
£ £
Sales revenue
At £25 per unit 250,000
At £20 per unit 100,000
Variable costs at £12 per unit (60,000) (120,000)
Contribution 40,000 130,000
Fixed costs (20,000) (50,000)
Profit 20,000 80,000

A supplier offers to supply 5,000 units at £18 each to division Y.

If division Y buys from the external supplier and division X cannot increase its external sales,
the change in total profit of Bailey plc will be a
A £10,000 decrease
B £30,000 decrease
C £10,000 increase
D £30,000 increase LO 1f

ICAEW 2019 Chapter 5: Pricing calculations 51

 22 Which two of the following criteria should be fulfilled by a transfer pricing system?
A Should encourage dysfunctional decision-making
B Should encourage output at an organisation-wide profit-maximising level
C Should encourage divisions to act in their own self interest
D Should encourage divisions to make entirely autonomous decisions
E Should enable the realistic measurement of divisional profit LO 1f

23 Which of the following best describes a dual pricing system of transfer pricing?
A The receiving division is charged with the market value of transfers made and the
supplying division is credited with the standard variable cost.
B The receiving division is credited with the market value of transfers made and the
supplying division is charged with the standard variable cost.
C The receiving division is charged with the standard variable cost of transfers made and
the supplying division is credited with the market value.
D The receiving division is credited with the standard variable cost of transfers made and
the supplying division is charged with the market value. LO 1f

24 A company has two divisions, A and B. Division A transfers one third of its output to B and
sells the remainders to the external market for £14 per unit. The transfers to division B are
made at the transfer price of cost plus 20%.
Division B incurs costs of £4 per unit in converting the transferred units before selling them
to external customers for £20 per unit.
Division A costs amount to £10 per unit and the budgeted total output for the period is 270
units. There is no budgeted change in inventories for either division.
The reported profits for the period will be
Division A Division B
A £900 profit £360 profit
B £900 profit £720 profit
C £900 profit £1,440 profit
D £1,332 profit £72 loss LO 1f

52 Management Information: Question Bank ICAEW 2019

 25 Division P produces plastic mouldings, all of which are used as components by Division Q.
The cost schedule for one type of moulding, item 103, is shown below.
Direct material cost per unit £3.00
Direct labour cost per unit £4.00
Variable overhead cost per unit £2.00
Fixed production overhead costs each year £120,000
Annual demand from Division Q is expected to be 20,000 units
Two methods of transfer pricing are being considered:
(1) Full production cost plus 40%
(2) A two-part tariff with a fixed fee of £200,000 each year
The transfer price per unit of item 103 transferred to Division Q using both of the transfer
pricing methods listed above is:
(1) Full production cost plus 40% (2) Two-part tariff with a fixed fee of £200,000 each
year
A £12.60 £9
B £12.60 £19
C £21.00 £9
D £21.00 £19 LO 1f

26 A and B are two divisions of company C. A manufactures two products, the X and the Y. The
X is sold outside the company. The Y is sold only to division B at a unit transfer price of
£410. The unit cost of the Y is £370 (variable cost £300 and absorbed fixed overhead £70).
Division B has received an offer from another company to supply a substitute for product Y
at a price of £330 per unit. Assume Division A and B have spare operating capacity.
Which of the following statements is correct with regard to the offer from the other
company?
A The offer is not acceptable from the point of view of company C and the manager of
Division B will make a sub-optimal decision.
B The offer is not acceptable from the point of view of company C and the manager of
Division B will not make a sub-optimal decision.
C The offer is acceptable from the point of view of company C and the manager of
Division B will make a sub-optimal decision.
D The offer is acceptable from the point of view of company C and the manager of
Division B will not make a sub-optimal decision. LO 1f

ICAEW 2019 Chapter 5: Pricing calculations 53