1. Persuasion Ltd makes and sells a single product which has a unit variable cost of...

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1. Persuasion Ltd makes and sells a single product which has a unit variable cost of R8. Fixed costs are R100 000 per annum. The company's management are having a sales price review, and have reduced the choice to a price of either R11 or R12 per unit. The volume of sales at each of these prices has been estimated as a probability distribution as follows: Price R11 Sales volume units 30 000 40 000 50 000 60 000 70 000 Probability 0,1 0,2 0,4 0,2 0,1 Price R12 Sales volume units 25 000 30 000 35 000 40 000 Probability 0,1 0,2 0,4 0,3 On this basis of expected value of contribution and profit, which sales price should be selected? 1. Persuasion Ltd makes and sells a single product which has a unit variable cost of R8. Fixed costs are R100 000 per annum. The company's management are having a sales price review, and have reduced the choice to a price of either R11 or R12 per unit. The volume of sales at each of these prices has been estimated as a probability distribution as follows: Price R11 Sales volume units 30 000 40 000 50 000 60 000 70 000 Probability 0,1 0,2 0,4 0,2 0,1 Price R12 Sales volume units 25 000 30 000 35 000 40 000 Probability 0,1 0,2 0,4 0,3 On this basis of expected value of contribution and profit, which sales price should be selected?

Answer rating: 100% (QA)

To determine which sales price is best you need to calculate the expected value of contribution and ... View the full answer