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Calculation of rate of learning (Unlike before) and optimal pricing !

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Calculation of rate of learning (Unlike before) and optimal pricing !

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 25, 2014 at 4:15 pm #213172
    smooth
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    The Q organisation is a large worldwide respected manufacturer of electronic goods.
    Q constantly develops new products that are in high demand.
    Market research has discovered that the price-demand relationship for a new DVD recorder product during the initial launch phase will be as follows:

    Price($) Demand(units)
    100 10,000
    80 20,000
    69 30,000
    62 40,000

    Production of the DVD recorder would occur in batches of 10,000 units and the production director believes that 50% of the variable manufacturing cost would be affected by a learning curve. This would apply to each batch produced and continue at a constant rate of learning up to a production volume of 40,000 units when the learning would be complete. The production director estimates that the unit variable manufacturing cost of the first batch would be 60$( $30 of which is subject to the effect of learning curve, and $30 of which is unaffected), whereas the average unit variable manufacturing cost of all four batches would be $52.71.

    There are no non-manufacturing variable costs associated with the DVD recorder.

    Required
    (a). Calculate the rate of learning that is expected by the production director. (2marks)

    (b). Calculate the optimum price at which Q should sell the DVD recorder in order to maximise its profits during the initial launch phase of the product. (8marks)

    I can’t make out to the suggested answer to this question.. That’s why i have posted this question here as i want your fine guidance on this question.

    Cheers : )

    November 26, 2014 at 9:25 am #213330
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    Every time you double production, the average time (and therefore cost) falls to the same fixed percentage of the previous average time.

    So cost for first = 30
    If learning rate is r, then average cost when we make 2 is 30 x r

    Then average cost we we make 4 is (30 x r) x r = 30 x r^2 and we know that this equals 52.71 – 30 = 22.71 (because 30 is unaffected by learning).

    So 30 r^2 = 22.71. You should then be able to calculate r without problem,/

    For (b) the only way is to calculate the total profit for each of the 4 possible selling prices. Whichever gives the highest profit is the best.

    December 1, 2014 at 5:11 am #214945
    smooth
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Thank you So much Sir : )

    December 1, 2014 at 9:01 am #215003
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    You are welcome 🙂

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