# Urgent pls- Pricing

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This topic contains 7 replies, has 3 voices, and was last updated by  ab1acca 2 years, 8 months ago. This post has been viewed 23 times

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• temi
Participant

Could you pls explain what is meant by “economy of scale” in relation to cost. I saw in an answer that due to economy of scale, cost may reduce. pls explain.

thanks

ab1acca
Member

Hi,

Economies of scale is the concept that as a business’ scale of production and operation grows, the average cost incurred per unit of operation falls. Kind of bigger, cheaper.

Assume that a business incures a cost of \$1000 per devlivery. If I send 500 units then average cost is \$1000/500 = \$2. But if I send 1000 units a load then average cost is \$1000/1000 = \$1. This is always in relation to fixed costs remember, variable costs increase with volume.

Similarly if I buy 1000 units atime instead of 500, the supplier might give me a discount and so average cost falls. The case goes the same for all fixed costs, just thing of ways that a big business could take advantage of its size.

Anyway I hope that clarified the issue, my problem is perfect information, John posted that there is a lecture on it, so is there any chance you know where I can find this lecture, cause I could’nt find it.

temi
Participant

tnx a lot, i quite understand it now,

i dnt know where the info is on the site, but i think i now understand that a great deal, its relate to EV , isnt it? whats ur prob about it, maybe i can help

ab1acca
Member

Well to be honest I have been using last session’s books so I only found out about perfect information and decsision trees a couple of days ago.
Anyway, well I am not sure although I got somethin from the decision trees, I know nothing about perfect information.
Am guessing perhaps if it possible and no trouble to you perhaps how to calculate the value of perfect information??
because such a question is there in opentuition notes but nothing in the answers of it, and although Mr. John posted the direct link to the lecture I have watched that lecture before it brilliantly explains maximax maximin regret and EV but sadly nothing about perfect information……..
Perhaps anything would help, it would be a shame if it came in the exam and i could not write anything.
And of course thanks in advance.

John Moffat
Keymaster

ab1acca
Member

Thank you very much Mr. John.

Now you have helped me alot, not only in value of information but F5 as a whole, but I’d hate to ask one final thing (hopefully) and of course if you can help.

I have understood everything but one thing is left of the new material I know how to calculate the breakeven units and revenue and using the C/S ratio for multiple products but I could not get anything on how to plot the graphs of BEP and PV chart, so if it possible only to point me something on how to draw the diagrams or anything. I perfectly know how to draw single product charts just never caame accross multiple ones. Problem is I have last session’s books so no new material.

Anyway if you can help, it would be very much appreciated and of course thank you.

P.S. is that all needed for value of information? and when calculating variable overhead variances should I only consider hours worked in case of expenditure variance and where idle time is present ?

John Moffat
Keymaster

The best for multi-product CVP is to read the examiners article in student accountant towards the end of 2010.

That is all there is to the value of perfect information.

For variable overhead variances you only look at hours worked – there is no idle time variance for variable overheads.

ab1acca
Member

Thank you.

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