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co s t plus and mar k et based pricing hospedeiras de portugal lda a large labour co 737063

Co s t plus and mar k et based pricing.

Hospedeiras de Portugal Lda, a large labour contractor, supplies contract labour to building construction companies. For 2008, Hospedeiras has budgeted to supply 80 000 hours of contract labour. Its variable cost is €12 per hour and its fixed costs are €240 000. Manuel Girardi, the general manager, has proposed a cost plus approach for pricing labour at full cost plus 20%.

Required

1 Calculate the price per hour that Hospedeiras should charge based on Manuel’s proposal.

2 Mirella Restrepo, the marketing manager, has supplied the following information on demand levels at different prices:

Price per hour Demand (hours)

€16

120 000

17

100 000

18

80 000

19

70 000

20

60 000

Hospedeiras can meet any of these demand levels. Fixed costs will remain unchanged for all the preceding demand levels. On the basis of this additional information, what price per hour should Hospedeiras charge?

3 Comment on your answers to requirements 1 and 2. Why are they the same or not the same?

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