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April 3, 2014 at 6:10 pm
Hi Mr Moffat. Grand lecture as usual, thankyou.
A question if I may.
If we ignored the incremental drops to 15.5 and 15.0 and went straight from 16.0 to 14.5, marginal revenue ($4200) would then be higher than marginal cost ($4080). You could take 15.5 and 15.0 out of the equation altogether, the rest of the variables would be the same and a drop to 14.5 would appear to be justified using the optimal pricing approach.
If you took out the variables when S.P. pu is 14.5, at an S.P. pu of 14.0, the drop from 16.0 pu would show both marginal revenue and marginal cost at $5400.
What am I missing?
John Moffat says
April 3, 2014 at 6:20 pm
Hi, and thank you for the compliment 🙂
In anser to your question, think about the graph that I draw on the screen – the profit goes up initially and then it starts going down. We want maximum profit.
If I said to you which is better, a profit of 20 or a profit of 30, then obviously 30 is better.
However if I then said to you than in between the two you could make a profit of 40, then what would you say then?
April 4, 2014 at 5:17 pm
Thank you for taking the time to reply.
What you’ve written makes sense, the point at which profit is at a maximum is clear based on the variables provided.
I’ve revisited my workings and, although the sums appear to work when you apply the workings over a range of variables, e.g. 16.0 straight drop to 14.0 as opposed to 16.0 to 15.5 etc, I suspect that I’m overthinking it and comparing apples to oranges.
Is it fair to say that the tabular approach only gives the ‘correct’ answer when all variables are treat as individuals (per SP) and not as an accumulation or over a range?
April 4, 2014 at 5:36 pm
You are correct in saying that the tabular approach only gives the correct answer when dealing with specific prices – not over a range.
In the past both tabular and equation approaches have been examiner (separately – not together) with equations being the more common of the two. However it will be made very clear which approach is wanted.
February 26, 2014 at 6:22 pm
I am not sure if I missed something, but when trying to find marginal revenue and marginal cost, you asked that we pretend that we didn’t know what total profit would be. Well then I started thinking that fixing the selling price at 15.50 would be the better option since marginal revenue of 1,500 exceeds marginal cost 1,380 by 120. When the selling price is fixed at 15, marginal revenue of 1,400 exceeds marginal cost of 1,360 by only 40. So what point did I fail to grasp?
March 4, 2014 at 6:08 am
If marginal revenue is higher than marginal cost, the the difference is extra profit.
If you get 40 extra profit then it is worth dropping the selling price. (Even if it was just $2 extra then it would be worth it)
February 9, 2014 at 11:25 am
Sir, I’m sorry but I didn’t understand the part where you said Maximum profit occurs when Marginal Revenue= Marginal Cost. If they are the same then we can’t be making profits? I’m a bit confused….
February 9, 2014 at 11:27 am
Nevermind, I think I got it 🙂
February 9, 2014 at 11:53 am
That good 🙂
(Remember that marginal means extra)
January 6, 2014 at 4:56 pm
I note your every lecture on my pc. But can you let me know which writing tablet and stylus(pen) you use to write on the screen? so I can write easily. The current one that I have is awful. Which software you use to record the screen??
Btw I am big fan of yours lectures 🙂
September 17, 2013 at 10:04 am
There is a small description of opportunity cost plus in the notes, but it was nowhere to be found in the lecture. Sir can you please give a detailed explanation of what it is, accompanied with an example and its relevance in exams?
September 17, 2013 at 10:05 am
About foregone opportunities in particular..
September 17, 2013 at 1:57 pm
The idea is very simple. Suppose you are going to produce a new product and are trying to decide on a selling price.
The materials used are in short supply and currently they are all used making another product which generates a contribution of $5 per unit.
Each unit of the new product will use 2 kg of material, whereas the existing product uses 1 kg of material per unit.
If we make the new product then every unit produced will mean that we are unable to produce 2 units of the existing product (because of the short supply of material).
Since the existing is generating $5 per unit and we will lost 2 units, each unit of the new product will have to generate $10 per unit.
Therefore the selling price will have to be at least the cost of production plus $10 for it to be worth producing.
(The extra $10 is an opportunity cost – we are not actually spending $10 but we would be losing $10 elsewhere.)
The idea is more relevant for other topics – for example in transfer pricing – and it is dealt with in more detail with examples in those chapters and lectures.
September 18, 2013 at 10:41 am
Awesome! Thank you 😀 Your way of explanation is very detailed and absolutely wonderful!
April 27, 2013 at 3:03 pm
Got it! Thanks Open Tuition.
April 20, 2013 at 12:28 am
April 17, 2013 at 9:34 am
What questions on past papers should i look at for revision?
Thank you very much Jon for all your help. It means allot to all the students.
March 20, 2013 at 6:09 pm
Thanks. Good and easy way to understand….
March 19, 2013 at 6:37 am
November 26, 2012 at 9:55 am
thanks its a great one
October 24, 2012 at 10:10 pm
Very simple & useful……….
September 26, 2012 at 5:25 am
What topic does this fall under?
Is it decision making techniques (Pricing Decisions)??!
October 29, 2012 at 10:06 pm
@desol, Pricing falls under decision making.
September 25, 2012 at 1:06 pm
September 19, 2012 at 11:16 am
my computer says errror 404,the page has moved ,please help am stuck.
September 19, 2012 at 8:12 pm
@faithnhawu, When does it say error 404? If you managed to get this page then the video plays OK.
August 20, 2012 at 5:35 pm
I never knew these lectures were this good and Simplified.
its 100% supper.
August 14, 2012 at 4:27 pm
i wont go to any other classroom again.this is good.cheers
June 10, 2012 at 5:39 pm
This lecture was well executed. Thanks alot!
May 25, 2012 at 8:45 pm
nice . .. thanx
April 22, 2012 at 6:29 pm
Many thanks, much better than most of my university lectures.
April 18, 2012 at 10:57 pm
Thank You very much Sir, You have done nice job.God Bless you.
April 16, 2012 at 4:11 pm
was good but the video froze at 20 mins
April 16, 2012 at 3:49 pm
makapenga,keep on doing that good work.God bless you very much
March 28, 2012 at 1:17 am
March 22, 2012 at 12:11 am
very nice lecture……
March 13, 2012 at 11:36 am
Thnks it was good…………..
March 5, 2012 at 12:12 pm
any way i can get the volume?
April 30, 2012 at 9:08 am
@esthernky, hey when ever u place the mouse pointer anywhere on the tutorial you will find a tool bar appearing at the end of the video, in that tool bar u will find icons such as the pause button, refresh, volume icon …
February 28, 2012 at 5:22 pm
pls i,ve not been able to listen to the lectures. There’s no volume. Any suggestions?
@omoyeni, hey when ever u place the mouse pointer anywhere on the tutorial you will find a tool bar appearing at the end of the video, in that tool bar u will find icons such as the pause button, refresh, volume icon …
February 20, 2012 at 6:35 pm
February 20, 2012 at 12:56 am
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