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SCS – L3 – Q20 – Functional strategies

Advise Vita Furniture Solutions on marketing strategies for household furniture and discuss sustaining competitive advantage.

Question

Vita Furniture Solutions

Mr. Samuel Asare is the Marketing Director of Vita Furniture Solutions, a medium-sized company which specialises in manufacturing office furniture. The company is located in Tamale, because of the availability of timber.

Mr. Asare has proposed to the managing director the need for the company to diversify into the manufacture of household furniture. If the proposal is accepted, the company would have to develop a suitable marketing strategy in order to match the competition.

Required:

(a) As a strategist, advise the company on FOUR marketing strategies it can adapt to market its new product.

(b) Discuss how strategies can be used to create and sustain competitive advantage.

Answer

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Tags: Brand management, Competitive advantage, Distribution, Furniture industry, Market entry, Marketing strategies, Pricing, Product diversification, Promotion, Strategic planning
Level: Level 3

Topic: Functional strategies

MA – L2 – Q50 – Pricing Strategies

Calculate prices for simplified Product Z using full cost-plus and budgeted profit pricing policies for Nexco Industries.

Question

Nexco Industries Limited makes Product Z in department C. For the year commencing 1 January Year 7, the following budget has been formulated for department C:

	GH¢000
Direct costs
Materials	60
Labour	40
	100
Production overheads	100
Full production cost	200
Administrative and marketing overheads	50
Full cost of sale	250
Profit	50
Revenue (see note)	300

Note: This revenue is from budgeted sales of 20,000 units.
Production overheads are absorbed on the basis of 100% of direct costs. However, half of these costs are fixed, and the other half are variable. It is assumed that they vary with the cost of materials.
The administrative and marketing overheads are based on 25% of factory costs and do not vary within wide ranges of activity. A profit margin of 20% is applied to the full cost of sale. This also results in a price that appears to be fair to customers.
Halfway through the year to 31 December Year 7, it became clear that actual sales of Product Z would be 25% below budget. At about the same time that this shortfall in sales became evident, a customer asked about buying 5,000 units of a simplified version of Product Z. If Nexco Industries Limited were to produce this simplified model for the customer, the direct material and labour costs would be lower. It is estimated that materials costing GH¢12,000 and direct labour of GH¢8,000 would be required to produce the 5,000 units. As the production could take place within the firm’s existing capacity, fixed costs would not be affected.

Required:
(a) Calculate the prices that Nexco Industries Limited should quote to the customer for each unit of the simplified product, assuming that the following pricing policies are applied:
(i) Full cost plus pricing, on the current basis.
(ii) A price that would enable the company to achieve its original budgeted profit.

(b) Give your advice on the price that should be quoted to the customer.

Answer

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Tags: Budgeted profit, Cost-plus pricing, Overhead absorption, Pricing, Profit Margin, Selling price, variable costs
Level: Level 2

Topic: Decision making techniques

MA – L2 – Q49 – Pricing Strategies

Calculate selling price for Product X using Nexco Limited’s normal pricing policy with a 16.67% profit margin.

Question

Nexco Limited has developed a new product, Product X, that it wishes to introduce to the market. The cost per unit is expected to be as follows, assuming annual sales of 40,000 units.

Cost per unit

Cost Item	GH¢
Direct materials:
Material M1 (2 litres at GH¢15)	30
Material M2 (0.5 litres at GH¢8)	4
Direct labour (3 hours at GH¢10)	30
Fixed overheads (3 hours at GH¢12)	36
Full cost	100

It has been company policy to price products to achieve a profit of 16.67% (one-sixth) on the sales price.

Required:
(a) Calculate the selling price that would be charged if Nexco Limited applies its normal pricing policy.

(b) If Nexco Limited decided to price products at marginal cost plus, what mark-up on the marginal cost would be required to obtain the same selling price as in (a)?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost-plus pricing, decision making, Pricing, Profit Margin, Selling price
Level: Level 2

Topic: Decision making techniques

Tag (SQ): Pricing

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SCS – L3 – Q20 – Functional strategies

Advise Vita Furniture Solutions on marketing strategies for household furniture and discuss sustaining competitive advantage.

MA – L2 – Q50 – Pricing Strategies

Calculate prices for simplified Product Z using full cost-plus and budgeted profit pricing policies for Nexco Industries.

MA – L2 – Q49 – Pricing Strategies

Calculate selling price for Product X using Nexco Limited’s normal pricing policy with a 16.67% profit margin.

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SCS – L3 – Q20 – Functional strategies

Advise Vita Furniture Solutions on marketing strategies for household furniture and discuss sustaining competitive advantage.

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MA – L2 – Q50 – Pricing Strategies

Calculate prices for simplified Product Z using full cost-plus and budgeted profit pricing policies for Nexco Industries.

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MA – L2 – Q49 – Pricing Strategies

Calculate selling price for Product X using Nexco Limited’s normal pricing policy with a 16.67% profit margin.

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