The Toowoomba Produce Suppliers packages and distributes three grades of animal feed. The material cost per tonne and estimated annual sales for each of the products are:
The indirect cost of operating the machinery used to package all three products is $20 000 per year. In the past, prices have been set by allocating the indirect costs to products on the basis of estimated sales in tonnes. The resulting total costs (material costs plus allocated fixed overhead) are then marked up by 100 per cent.
- Allocate total indirect cost to each product.
- Determine the total cost for each product.
- Calculate the selling price per unit for each product, using the method described for setting prices.
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