help Bpp Pricing dedisions

@kashmira,

think of 1.05 and 1.03 as 105% and 103%.
For decision purposes you need to analyze relevant or incremental costs. Those that arise as a direct consequence of decision taken.
In our it’s price of further purchases of materials A and B.
it will be 5% higher for A and 3% higher for B.
so it was 100% and now 105 and 103 multiplied by price in monetary terms.

Labour required per unit is 1 h ,so for 5.000 units u need 5.000 hours.
current production is calculated in solution it is : 35.000 units.
While current capacity , that is how he efficiently he can work is 36.000 units.
So with current capacity if he decides to take this new order of 5.000 units, he can produce 1.000. So this 1.000 units each takes 1h each wil be priced at priced at current cost of labour.
The rest 4.000 willl be produced by contracting some labour which will cost 3.5 per hour.
incremental here is both 1.000 and 4.000 , even though you produce one thousand with current capacity.
Reason is because if decision to sell 5.000 units more was not taken , then would not need to be produced and that cost of labour will not occur. He would simply keep producing 35.000, leaving a free capacity of 1.000 units.