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PM Chapter 7 Questions Pricing
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Sir ,
In Question No 1
Total 26
Gross profit 20
So cost 100 , Profit 120
Total cost = 26
Profit
26*20/100 = 5.2
Selling price= 31.2 but How it coming 32.5
Kindly explain
The total cost is 26 per unit.
If the profit is 20% of the selling price, then the cost is 80% of the selling price.
Therefore the selling price is 26/80% =$32.50.
(and, of course, it checks. The profit is 32.50 – 26.00 = 6.50, and 20% x 32.50 = 6.50 馃檪 )
Thank you Sir
You are welcome 馃檪
Hi
Im not sure About Hi John- im not sure if i get this calculation a= 200+(.003*100,000) = 500 . Can you please explain?
multiply 100,000 by 0.002 and you get 300. Add it to 200 and you get 500 馃檪
regarding the question 3
I made a mistake in calculation in the equation MR=MC that
a-2bQ=8*Q.
my question is that if the marginal cost is always equal to variable cost?
Yes – marginal means variable 馃檪
Hi John- im not sure if i get this calculation a= 200+(.003*100,000) = 500 it should be 230. Can you please explain?
0.003 x 100,000 does not equal 30. It is equal to 300 !!
Very tricky questions 馃榾
Why is Q4 penetration pricing & not Volume??
They are selling at a discount for a limited period in order to gain market share. Volume discount is where a discount is given just to those who buy large quantities, which is not the case here.
Have you watched our free lectures on this?
The question specifies ‘promotional campaign’, wouldn’t that also mean the products are sold in discounts possibly for larger quantities? From what I understood penetration pricing is to charge a low price initially to gain market share and then increase it later. Example: Introduction of Samsung smartphones into the market. On the other hand, a promotional campaign can be held anytime during the life cycle of the product right? In this case wouldn’t volume discounting benefit as well?
The promotional campaign makes no mention of volumes. So whatever the quantity purchased there will be a discount. This can happen when there is a new product, but it can happen at any time in order to try and gain market share.
Have you watched my free lectures on this?
how the answer be 31.2 when the question said the gross profit margin is 20% and not the net profit margin
Messed up the easy 1. Question 4, got the rest correct. This is pure example of how an examiner can fool you with basic English, I got trapped. Read the questions properly before answering guys.
Sir, I also got wrong for Q.1, very confused about the % of cost-plus, mark up, and gross profit margin, can provide some hits for easy identify the equation?
And for the absorption costing, fixed overhead costs should be allocated to a product whether or not it was sold in the period, but why the overhead cost $5 is excluded here?
The overhead cost has not been excluded. The total cost is 10 + 8 + 3 + 5 = $26.
The gross profit margin is the profit as a % of the selling price. So for every $100 selling price, the profit is $20 and therefore the cost is $80. Putting it the other way round, for every $80 cost, the selling price is $100. Therefore for a cost of $26, the selling price must be 100/80 x $26.
(Mark-up is the profit as a % of the cost. You can find more examples of both the gross margin and the mark-up in the Paper FA lectures on “mark-ups and margins”)
I confused on Q3. Why MR=500-0.006X how to get the 0.006?
b = 30/1000 = 0.003
The formula provided for the marginal revenue contains 2b, and 2 x 0.003 = 0.006
Did you watch the free lectures before attempting the test?
please can you explain it more. Thank you
But I have explained (and explain exactly how this is arrived at in the free lectures).
question 2
Dear Sir,
I am a bit confused here. Price demand equation is P= a-bQ . Therefore the answer should be P=75-.0025Q and I have got it wrong. Could you please explain.
Ya same here mitiksha.i also have same doubt.
Ok I got it. This is my solution.
P = a – bq
So here I have to find first b= change in price/ change in qty
5/2000 = 0.0025
Next step is I have to find a so
P= a-bq
25 = a-(0.0025*20000)
a= 75
So therefore answer is p=75-0.0025q.
I hope u understand
Correct 馃檪
this question are really good
I just want to understand something. there are three ways
1. 100/80 * 26
2. 120/100 * 26
3. 26*100/20
like on absorption costing question about selling price,i got it wrong coz i am always confused when it comes to the three ways. like the way the questions are asked,how best can l know which one to use.?
Unless the question specifically says differently, a profit margin is the profit as a % of the sales. A mark-up is the profit as a % of the cost.
(It may help you to watch the Paper FA lectures on mark-ups and margins.)
Thanks
Thank you ! you explained it so well in that lecture
Hello Sir,
i hope you are well. One Qs; i do not understand why you did 100/80*26 Can you please explain?
thank you,
If the profit is 20% of the sales then the cost must be 80% of the sales. Therefore the sales must be the cost divided by 80% (which is the same as multiplying by 100/80).