Problem:
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, and expected volume = 5,000 tests.
Task:
a) What price should be set under full cost pricing?
b) What price should be set under marginal cost pricing?
Illustrate in detail clarify all workings.