Homework Answers
Additional considerations that can be considered while establishing the selling price are :
1.Market demand of the product - The organization has to estimate the market availability of the product and accordingly set the selling price.
2.Delivery cost - Delivery cost of the product shall be taken into account while fixing the selling price
3.Shelf life - Shelf life of the product to be considered. If the shelf life is less and cannot be retained for very long, the entity must look forward to dispose it off soon by setting a relatively lesser selling price as compared to the market price
Answer to 6 :
| Particulars | Amount ($) | |||
| Investment | 1800000 | |||
| 9000 units | ||||
| Total variable cost | 1665000 | |||
| Factory OH | 360000 | |||
| Selling and Admin | 180000 | |||
| Total cost | 2205000 | |||
| Target profit (20% on 1800000) | 360000 | |||
| Target sales | 2565000 | |||
| Selling price/unit | 285 | |||
| As on 01-Aug-2012, | ||||
| Units sold | 5000 | |||
| Contribution received | 1425000 | |||
| Differential analysis | ||||
| Offer from Canada : | Local sales : | |||
| Selling price/unit | 225 | Selling price/unit | 285 | |
| Cost of production (90+20+40) | 150 | Cost of production (90+20+40+35) | 185 | |
| Contribution/unit | 75 | Contribution/unit | 100 | |
| Fixed cost/unit (540000/9000) | 60 | Fixed cost/unit (540000/9000) | 60 | |
| Net profit/unit | 15 | Net profit/unit | 40 | |
| Total profit (15 * 1500) | 22500 | Total profit (40 * 1500) | 60000 | |
| Basis the above comparison, the offer from Canada should not be accepted. | ||||
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