Question

Assume a clinical laboratory is considering a new test. Here are the key assumptions: Annual fixed direct costs = $20,000. Annual overhead allocation = $10,000. Variable cost per test = $5. Expected volume = 5,000 tests.What price should be set under marginal cost pricing?

Answer 1

$ 5

Step-by-step explanation:

Given data:

Annual fixed direct costs = $20,000

Annual overhead allocation = $10,000

Variable cost per test = $5

Expected volume = 5,000 tests

Now,

the marginal cost does not included the fixed and the overhead costs.

Thus,

The total marginal cost for 5,000 test = Variable cost per test × Number of tests

or

The total marginal cost for 5,000 test = $ 5 × 5,000 = $ 25,000

Now,

the pricing under marginal cost = marginal cost / expected volume of test

or

the pricing under marginal cost = $ 25,000 / 5,000 = $ 5