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      • Avatar of zahreddine says

        In example5, for instance “a reduction in selling price of $1 will result in additional sales of 100 units”. what should we do in the case where we don’t have this data?

      • Avatar of John Moffat says

        Sorry – I completely misunderstood you :-(

        If you are required to produce the price/demand equation, then you have to be given that data in one form or another.

    • Avatar of John Moffat says

      Neither!

      Key factor analysis and throughput accounting are only relevant when there is a limit on the resources available and several products to choose from. None of those factors are relevant here.

      Once the demand and associated selling price have been calculated, all the information is available to calculate the profit.

      • avatar says

        Sir,

        (Ex 06, when calculating contribution per annum you deduct variable cost from selling price and then deduct the fixed cost. why do we deduct both variable cost and fixed O/H to calculate the profit. please help sir

      • Avatar of John Moffat says

        Profit is revenue less all costs.
        Contribution is revenue less variable costs.
        Profit is contribution less fixed costs.

        Variable costs are those where the total changes with the level of production. Fixed costs are those there the total stays the same for all levels of production.

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