Answer to Question #289418 in Finance for zar

Question

The average cost of garment is £28.50

• The labour involved in producing on average 30 hours
• Casual labour currently costs £5.50 per hour; will have to increase this next year by at least 5%
• The transportation costs with the cost of delivery amount to £4.50 per sweater.

the company also runs a Head Office which costs £100,000 per year. The Directors require total salaries of £125,000 and each year they award themselves a 5% pay increase.This year advertising spend is £115,000. Next year the Sales Director would like to advertise in airline magazines, he believes that this would increase sales from this year’s forecast of 2,000 sweaters. He estimates that if the advertising budget is increased to £285,000 then sales would increase to 5,000 sweaters.

sweaters sell for between £200 and £400.

1. Is the Managing Directors friend right in suggesting that marginal costing is an appropriate way to control costs and set a selling price? You should illustrate your answer with relevant calculations.

Answer 1

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