Use of absorption and ABC to calculate the selling price of a product
Once a business knows the total cost of a product, it adds a profit mark-up to set a selling price. Absorption costing and ABC can each produce a different total cost, so they can produce different selling prices.
Formula
Selling Price = Total Cost per Unit × (1 + Mark-up %)
Real World
Brompton Bicycles calculates that ABC gives a total cost of £480 per bike while absorption costing gives £450 — using a 40% mark-up, ABC suggests a selling price of £672 versus £630, a £42 difference from the same factory costs.
Exam Focus
State which costing method gives the higher or lower price and explain why — simply showing two calculations without comparison loses evaluation marks.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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