Absorption cost Pricing (Higher
Level extension)
Ing. Pablo San Andrés
Dolls-R-US
Dolls-R-Us is a manufacturer of toy dolls, with
three product lines: Penny, James and Lori the
cat. Its annual fixed costs of $85000 consist of
the following:
Rent: $36000
Administration: $25000
Depreciation: $12000
Other: $12000
Information on the three products in shown
below:
Questions
a) Outline the evidence that suggests Dolls-R-Us
has used a cost-based pricing strategy
b) Calculate the unit contribution for each of the
three products
c) Explain three criteria that would be appropriate
in allocating the firm´s fixed costs to each of the
three products.
d) Use your answer to Question 1c to allocate the
total fixed costs. Prepare an analysis of the total
costs, total revenues and profit for each product