Topic: Pricing

Mootomooto Bakery produces bread that is sold by agents within the Kumasi Metropolis.

For every batch of bread, 15 bags of flour are used. Below are details of the cost of processing a batch of bread:

i) Direct materials:

• Flour: 15 bags at GH¢220 per bag.
• Sugar: 10 kilograms at GH¢15 per kilogram
• Margarine: 20 kilograms at GH¢25 per kilogram
• Egg: 1 crate at GH¢30 per crate

Other direct materials: GH¢550

ii) Direct expenses: GH¢650.
iii) Direct Labour per batch: 20 contract workers, each works for 6 hours to be paid GH¢6 per hour.
iv) Fixed overheads: The details of monthly production overheads, which are absorbed per number of bags of flour produced, are given below:

It is estimated that 2,500 bags of flour will be baked in a month.

v) Administrative expenses: Administrative expenses are estimated at 10% of production cost.
vi) Commission on sales and distribution expenses: 8% of the selling price.

Required:
a) Calculate the production cost of a loaf of bread if each bag yields 120 loaves. (12 marks)
b) Calculate the selling price per loaf if profit is 14% of selling price. (8 marks)