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February 18, 2016 at 4:43 pm
Well done Mr John, but please help me clarify this, from the example, at price $16 – MR=$1,500 and MC=$1,380, the extra profit = $120 (i.e $1,500-$1,380) but at price $15 – MR=$1,400 and MC=$1,360, the extra profit=$40, from this how can $15 be the optimum price?
John Moffat says
February 18, 2016 at 8:50 pm
Because any extra profit makes the total profit higher, and we want the maximum total profit.
$40 is not the total profit, but is the extra profit to be made by dropping the price to $15.
February 18, 2016 at 12:46 am
JUst one tiny little question……variable overhead is 23…was it derived from deducting fixed o/h from fullcost?
February 18, 2016 at 7:33 am
February 28, 2016 at 11:39 pm
February 29, 2016 at 7:32 am
You are welcome 🙂
October 2, 2015 at 1:19 am
Hi ,sir john Moffat excellent lecture,thank you for making hard topics easy and understood
August 20, 2015 at 9:20 pm
In the lecture you said ‘full cost plus’ pricing has the advantage to guarantee the profitability. However, full costing method dose not address the importance of contribution. I would say without the guarantee of contribution, the profitability cannot be guarantee also. Should I assume full cost plus pricing cannot guarantee the profitability?
August 21, 2015 at 8:03 am
Full cost pricing doesn’t guarantee overall profitability because the actual sales may be different that budgeted.
However, the earlier part of what you have written is not true. If a profit were guaranteed then automatically contribution would be guaranteed – contribution is profit plus fixed overheads. (But the other way round is not true – making a total contribution does not guarantee a profit, because of fixed overheads).
There are problems with both approaches, mainly stemming from the fact that both ignore the affect of the selling price on the demand. Theoretically the best way of dealing with it is dealt with in the next lecture.
August 21, 2015 at 11:55 am
Thanks a lot!
April 20, 2015 at 5:28 am
How is it u say maximum profit occurs when MR=MC, but in the example u did, optimum selling price is $15, MR IS 1,400 while MC is 1,360. They aren’t equal in anyway. Kindly shed more light(I think this is what fahim also meant to ask). Thanks.
April 20, 2015 at 8:07 am
You need to listen to the lecture more slowly. I say that when MR>MC then it is worth reducing the selling price because profit will increase. When MR<MC then it is not worth reducing because profit will fall.
The maximum would occur when MR=MC which will be somewhere between 15 & 16, but in this question (when it is given as a table) then somewhere between 15 & 16 is not allowed, so the maximum is at 15.
It seems that you have only watched part 1 of the lecture. If you watch part 2 then I draw a graph which might make it clearer for you.
(and it is not at all what fahim was asking! 🙂 )
April 20, 2015 at 11:30 am
Thanks, I appreciate the prompt response.
December 17, 2014 at 5:04 pm
Can someone explain why Maximum Profit = Marginal Revenue = Marginal Cost???
December 17, 2014 at 5:23 pm
Maximum profit is not equal to the other two!
Maximum profit occurs when marginal revenue equals marginal cost.
If extra revenue is more than extra cost then it is possible to increase the profit. If MR < MC then the profit will decrease. Maximum profit is when the two are equal.
March 8, 2015 at 11:47 am
MR=MC . is it a breakeven point where profit is zero and there is no gain no loss?
March 8, 2015 at 11:55 am
No it is not.
If you read the previous post carefully, it says that when marginal revenue = marginal cost then it is where we get maximum profit.
January 31, 2015 at 11:26 am
pls how do i download this videos
January 31, 2015 at 11:51 am
Lectures cannot be downloaded – they can only be watched online.
It is the only way that we can keep this website free of charge.
October 7, 2014 at 5:18 am
Thank you sir…you’re a life saver!
September 27, 2014 at 11:09 am
Superb! For us in the developing country in Africa, sharing the same knowledge with developed country, is amazing. Great project! You mean a lot to us… Tanzania.
September 23, 2014 at 11:33 pm
@ John Moffat
Hi Sir, Firstly I will like to thank you and OT for these lovely lectures.Most days I work 13hrs a day and can only do studies after so going to classes is not an option so this is really a blessing for me. That said, I am using the BPP text book and I see they have a lengthly explaintion for “the profit-maximising price/output level” is this the same as the Optimal pricing method explained in this lecture. Forgive me if its a silly question but I would like to clarify this because I am not seeing the “Optimal Pricing” in the BPP text. Thank you kindly and do keep up the great work.:) Greatly appreciated.
September 24, 2014 at 8:22 am
Yes – it is the same thing 🙂
(and thank you for your comments 🙂 )
September 24, 2014 at 3:14 pm
May 1, 2014 at 5:20 pm
It is relevant costing, which is part of Chapter 9 of the Course Notes.
Please realise that the Course Notes are not meant to be Study Texts – they are notes used with the lectures.
The Course notes together with the lectures (and the Revision Lectures) cover more than enough to pass the exam well, provided that you also practice lots of past questions (preferably using an Exam/Revision Kit from one of the approved publishers).
No way says
May 1, 2014 at 5:01 am
In your lecture note shows optimal pricing – tabular approach but in BPP textbook the approach is not mentioned, can you tell me why we must know that? Is that this shows in past exam question? Can you tell me which year this approach uses?
May 1, 2014 at 7:12 am
The reason you should know it is that both the tabular and the algebraic methods are specifically included in the Paper F5 syllabus!!
If the BPP Study Text does not include it then I am surprised – the Kaplan Study Text certainly includes it.
The tabular method if certainly much less likely for the exam than the algebraic method, but (as I say in my free lecture) it is important not only because it is in the syllabus, but also because understanding it explains the logic behind the algebraic method and you could be asked to explain. 50% of the exam is writing and proving that you understand the techniques involved.
May 1, 2014 at 11:08 am
Thank you sir, maybe my text is out of date.
May 1, 2014 at 11:11 am
No problem (although this part of the syllabus has not changed for many years, so it should be in the Study Text somewhere).
May 1, 2014 at 11:55 am
One more question sir,
Where is “Pricing/Decisions to increase production and sales”- ( item B4(e) in F5 Study guide Syllabus: Evaluate a decision to increase production and sales levels, considering incremental costs, incremental revenues and other factors) showing up in your Lecture Note? I cant find where it is.
Im sorry if my question is silly but I just want to be guaranteed that your lecture note fully cover every knowledge in F5.
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