Tutorial
Question 01
Following cost and revenue information are given in a company.
Price per unit = Rs. 640
TC = 240Q 20Q2 + Q3
Find out the output which maximizes profits of the company
Approaches
TR and TC approach
MR = MC Approach
Question 02
Ella (Ltd) recently started to manufacture and sell product DG. Variable cost of product DG is Rs 4 per unit and the total weekly fixed costs are Rs. 18,000.
The company has set the initial selling price of products DG by adding up to 40% to its total unit cost. It has been assumed that production and sales will be 3000 units per week. The company holds no stocks of products DG
Required,
Calculate,
(i) The initial selling price per unit and the resultant weekly profit of DG
Management Accountant has established that a linear relationship between the unit selling price (P in Rs.) and the weekly demand (Q in units) for product DG is given by:
P = 20 - 0.002Q
Marginal revenue (MR in Rs. Per unit) is related to weekly demand (Q) by the equation,
MR =20-0.004Q
(ii) Calculate the selling price per unit for product DG that should be set in order to maximize weekly profit. (iii) Distinguish briefly between penetration and skimming pricing policies when launching a new product.
Question 03
ST is a distribution company which buys a product in bulk from manufacturers, repackages the product into small packs and then sells the packs to retail customers. ST's customers vary in size and consequent the size and frequency of their orders also vary. Some customers order large quantities from ST each time they place an order. Other customers order only few packs each time.
The current accounting system of ST produces very basic management information that reports only the overall company profits. ST is therefore unaware of the cost of servicing individual customers. However, the company has now decided to investigate the use of direct customer profitability analysis (DCPA).
Information for two customers and for the whole company for the previous period is as follows.
Customer D 75 40.5
Company
B
Factory contribution (Rs. 000') Number of: Packs sold (000) Sales visit to customers Orders placed by customers Normal deliveries to customers Urgent deliveries to customers
450
50 24 75 45 5
27 12 20 15
300 200 700 240 30
Activity cost sales visits to customers Processing orders placed by customers Normal deliveries to customers Urgent deliveries to customers
$000s
50 70 120 60
Prepare a direct customer profitability analysis for each of the two customer