--- title: "Cost-plus pricing numerical" subject: "Entrepreneurship Development" chapter: 3 key: "semester_7/entrepreneurship_development:pricing-cost-plus-numerical" source: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/pricing-cost-plus-numerical site: BCT Engineering --- # Cost-plus pricing numerical Entrepreneurship Development · Chapter 3: Market Validation - Asked in: year not given, 6 marks - Video: [SCM Cost Plus Pricing Problem 1 Solved](https://www.youtube.com/watch?v=W6GPFWyKqO4) — Smart Shiksha - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/pricing-cost-plus-numerical - Whole chapter: https://www.bctengineer.com/md/semester_7/entrepreneurship_development/chapter-3 ## Question A startup makes handmade bags. Direct material is Rs 120 per bag, direct labour Rs 40 per bag, and fixed overhead is Rs 6,00,000 per year. Expected output is 10,000 bags per year. The owner wants a 35% mark-up on full cost. (a) Find the selling price before tax. (b) Find the price the customer pays if 13% VAT is charged. (c) Name two other pricing methods. ## Short answer Fixed overhead per bag = Rs 60, full cost = Rs 220. With 35% mark-up, selling price before tax = Rs 297. Adding 13% VAT, customer pays Rs 335.61. ## Answer #### Given Material = Rs 120, labour = Rs 40, fixed overhead = Rs 6,00,000, output = 10,000 bags, mark-up = 35%, VAT = 13%. #### (a) Selling price before tax Overhead per bag: $$ \frac{6{,}00{,}000}{10{,}000} = \text{Rs } 60 $$ Full cost per bag: $$ 120 + 40 + 60 = \text{Rs } 220 $$ Selling price with 35% mark-up: $$ 220 \times 1.35 = \text{Rs } 297 $$ #### (b) Price paid by the customer $$ 297 \times 1.13 = \text{Rs } 335.61 $$ (The VAT of Rs 38.61 is collected for the government, not income of the startup.) #### (c) Other pricing methods - **Competition-based pricing:** price set near rival prices. - **Value-based pricing:** price set by the worth customers see in the product. - (Also: penetration pricing, skimming, freemium.) Note that the cost per bag of Rs 220 holds only if 10,000 bags are sold; at lower volume the overhead per bag rises. **Answer:** Selling price = Rs 297 per bag; with 13% VAT the customer pays Rs 335.61. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. What is the fixed overhead per bag? A. Rs 60 B. Rs 6 C. Rs 600 D. Rs 160 Answer: A. 6,00,000 / 10,000 = Rs 60. (Key point: Overhead per bag) 2. What is the full cost per bag? A. Rs 160 B. Rs 220 C. Rs 180 D. Rs 280 Answer: B. 120 + 40 + 60 = Rs 220. (Key point: Full cost) 3. With a 35% mark-up on full cost, the selling price is: A. Rs 255 B. Rs 285 C. Rs 297 D. Rs 335.61 Answer: C. 220 x 1.35 = Rs 297. (Key point: Selling price) 4. What does the customer pay with 13% VAT, and who keeps the VAT? A. Rs 297; VAT is startup income B. Rs 335.61; VAT is startup income C. Rs 310; VAT goes to the government D. Rs 335.61; VAT goes to the government Answer: D. 297 x 1.13 = 335.61 and the Rs 38.61 VAT is collected for the government. 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