Skip to content

Ask the Tutor ACCA PM

Pricing kaplan kit question 246 H.S equation

Jjawad6y ago
HS manufactures components for use in computers, The business operates inn highly competitive market. where there are a large number of manufactures of similar components. The Managing Director seeks your advise to determine the selling price that will maximize the profit to be made during this period; Date given: MARKET Demand: The current selling price is $ 1350 and at this price the average weekly demand over lat four weeks has been 8,000 components. An analysis for the market show that for every $50 increase in price demand will falls by 1000 components per week. Equally for every $50 reduction in selling price, the demand will increase by 1,000 components per week. Cost: Direct materials is $270. The price is part of a fixed price contract with the material suppliers and the contract does not expire for another year. Production labour and conversion costs, together with other overheads cost and the corresponding output volumes, have been collected for the last four week and there are a follows: Week Volume Cost 1 9,400 7,000 2 7,600 5,688 3 8,500 6,334 4 7,300 5,446 No significant changes in cost behavior are expected over next 12 weeks. REQUIREMENT; Calc optimum selling price of the component for the period Sir, my question is regarding first part of calc. Why would/should we use P=1400 instead of 1350 and Q= 7000 instead of 8000 when substituting the value of b=0.05 ? As in Why 1400=a-0.05×7000 equation was used. I understand the calc. But i am getting confused about the reason behind it. Why can't we simply use 1350=a-0.05×8000. Please care to answer the reasoning. Thanks.
John MoffatJohn MoffatTutor6y ago#1
By all means use 1,350 and 8,000. It gives the same answer :-) I don't know why Kaplan decided to do different, but it doesn't matter.
Jjawad6y ago#2
Thanks a lot sir.
John MoffatJohn MoffatTutor6y ago#3
You are welcome :-)
This topic is locked — no new replies.