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I am going through this question however the solution does not give the answer as to where the profits come from.
It states the cost p.u. is $6 and the selling price is $11, so profit $5 p.u.
The contract selling price is $9 p.u..
It states for Demand at 400 and Contract at 300 the profit is 2900.
Can help me find where this 2900 comes from.
I have done Cement Co – Jun 2011 and this makes sense but the John question doesnt add up.
Perhaps I am missing something.
Regards
Mat
The profit on normal sales is $5 per unit.
The profit on contract sales is $9 – $6 = $3 per unit.
So if we sell 400 normal sales and 300 contract sales then the total profit is (400 x $5) + (300 x $3) = $2,900.
(The notes are to go with the lectures, and you will that in the lecture I do go through the workings for the figures.)
Hi John,
Thank you for the response and now makes sense. I am sorry I didnt get to see your lectures.
I didnt know there was normal sales and contract sales, makes sense now.
Thanks
Mat
Hi John,
Re: Cement co June 2011 Part (a)
I am confused about one figure in the payoff table “640”
My calculations for that figure is: “1040”
280 * 5 – ((280-200)*4.5)) = 1040
Can you please state where I am going wrong?
Kalyca
The supply is 280, so the cost is 280 x $4 = 1,120
The demand is 200, so the revenue is 200 x $9 = 1,800
There are 80 left and the cost of disposing them is 80 x 0.5 = 40
So the net pay off = 1800 – 1120 – 40 = 640.
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