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ACCA F5 Lecture – Pricing Part 2b

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  1. Hello there, Mr. Moffat, I got a question related to the test that is at the end of chapter 7.
    Question 1 asks about the selling price of the product, my answer was as follows:
    10+8+3+5=26*120%=31.2 which gives the answer C. My answer was based on the assumption that it’s profit margin, since the company wishes to make a gross profit margin of 20%.
    But in the answers behind, your solution was based on the assumption as if it’s a mark up which gives the answer B!
    Could you please explain how did you reach to that assumption?

    • In future it is better if you ask this sort of question in the Ask the Tutor Forum rather than as a comment on a lecture.

      The answer is correct.

      A gross profit margin of 20% means that the profit is 20% of the selling price (and therefore the cost is 80% of the selling price).

      What you are doing it treating it as though it is a mark-up of 20% which would mean the profit was 20% of cost.

      It will help you to watch the Paper F3 lecture on mark-ups and margins.

  3. In example 6 where you work out the 1st equation to get P=120 – 0.001Q I dont not understand why, in the next step, to calculate Maximum profit, you then set out the equation as 120 – 0.002 = 5.

    Why 0.002 when in the previous equation b = 0.001?

    • I probably will record a lecture – but only when I have the time.
      However it is explained well in the lecture notes (and the lectures and the lecture notes go together – using just one or the other is no good)

  5. thank you very much sir, am preparing for f5 september 2015 diet and i realy find your lectures helpful. please do i need to still use my bpp exam kit as the kit is too bulky and i go to work everyday or can i just use open tution lecture note and will be sure of passing brilliantly by Gods grace.

    • In pricing questions we always assume that the price/demand relation ship is linear.

      Because of that, in this example, if the price goes up by $2 then the demand will fall by 2,000 units, but also, if the price goes down by $2 then the demand will increase by 2,000 units.

  9. hello sir

    I just noticed on example 6 you did not work out the formulas for total revenues or even total cost…….Does this mean you do not need these to derive at the answer? You can simply work it out from the marginal revenue = marginal cost formula?

    Thanks in advance

    • Although you could be asked to calculate total revenue and/or total cost, if you are simply asked to state which selling price will result in maximum profit then all you need to do is use the fact that for the optimum then it is when MR = MC.

  12. Many thanks for these brilliant lectures. I have been studying one per evening and am finding ACCA brilliant (this is my first module) thanks to your website.

    A quick question, was example 3 of chapter 7 covering price elasticity of demand omitted from your lecture? I haven’t taken any notes on it. Probably my mistake!

    Thanks again.

  14. Thanks for the lecture. However, I have an issue. Going with the TR equation of TR = (A-BQ)Q, slotting in the figure of 57500 for quantity as derived, a as 120 and solving , we do not get the correct TR. Why is it so

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