Forums › Ask CIMA Tutor Forums › Ask CIMA P2 Tutor Forums › Max Contribution and VC Estimation
 This topic has 3 replies, 2 voices, and was last updated 4 years ago by Cath.

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December 26, 2017 at 7:46 am #424213felipemantovani
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Hi, could you please help me understand the nightmare that is this question and suggested answer? There are clear typos and I don’t know how they magically summoned the variable cost per unit. This is a CIMA P2 Mock exam question. Thank you!
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Question: If Jojo sets a selling price for his widgets at $200 per unit, he will achieve sales of 1,000 units per month. With a selling price of $220, he will reach sales of 950 units per month. What is the maximum contribution Jojo can hope to achieve?Maximum contribution: $ ___________
Answer: The first step is to find the gradient b. The question provides us with two selling prices and the respective level of demand at these selling prices. Therefore, we can begin by calculating the gradient of the straight line, b.
b = change in price / change in quantity
b = (220 – 200) / (950 – 1,000) = 0.4
Then we can calculate the intersect ‘a’. It can be found using either of the selling prices and demand levels given. For example, price (P) = 200 when 1,000 units are sold and substituting .04 for b.
200 = a – (0.4 * 100) so a = 600
Therefore, the equation is P = 600 – 0.4Q
MR = 600 – 0.8 Q
MC = VC so equating MR = MC : 100 = 600 – 0.8Q
So, Q – 625 and substituting Q in the Price function we get P = $350
Contribution per unit = $350 – $100 = $250 and total contribution = $250 x 325 units = $156,250.
———————————————————————————————————————December 28, 2017 at 1:39 am #424978CathModerator Topics: 0
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Hi, I went to investigate this question because from what you have written – you are right in thinking variable cost has not been given so must be a missing due to a typo.
However , I can’t find this question in the latest version of Cima P2 Pearson assessment. Please can you give me the question number so I can confirm the details provided by Cima are insufficient to answer it…
Kind Regards
CathJanuary 22, 2018 at 8:24 am #431978felipemantovani Topics: 6
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Hi, this was on an online mock from my tuition provider’s moodle.
The question ID: CIMATuASS_P2_049.
Thanks for the help.
January 22, 2018 at 3:53 pm #432115CathModerator Topics: 0
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Ah in that case you’ll have to confirm with your tuition provider directly but I do believe you are missing the information necessary to calculate variable cost.
Possibly this has been omitted or maybe this is part of a longer question and variable cost was given in earlier scenario?
Kind Regards 
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