The management of Price Company (Price Co) are not happy with the volumes of sales sold...

 

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The management of Price Company (Price Co) are not happy with the volumes of sales sold last year for its product called FED2018, as an intervention to increase the sales volume as well as profit they have decided to launch a new product called GLORY2019. You are the management accountant for Price Co and you are provided with the following information: Product: GLORY2019 Raw materials Direct labour Manufacturing cost Fixed cost Total costs 20% of the manufacturing cost are variable cost, the company only has enough production capacity to produce 5,000 units without incurring extra costs and fixed cost. However, it would be possible to purchase product GLORY2019 from a sub-contractor at N$6.50 per unit fororders up to 7,000 units. The following price - demand relationship is based on a market survey and past experience: REQUIRED 1.1. TOTAL MARKS Selling price (N$) Units Standard cost per unit N$ 1.30 2.50 6.00 1.00 10.80 24 5,000 22 20 7,000 10,000 15 12 000 Determine the selling price at which profit should be maximised. Marks 7 7 The management of Price Company (Price Co) are not happy with the volumes of sales sold last year for its product called FED2018, as an intervention to increase the sales volume as well as profit they have decided to launch a new product called GLORY2019. You are the management accountant for Price Co and you are provided with the following information: Product: GLORY2019 Raw materials Direct labour Manufacturing cost Fixed cost Total costs 20% of the manufacturing cost are variable cost, the company only has enough production capacity to produce 5,000 units without incurring extra costs and fixed cost. However, it would be possible to purchase product GLORY2019 from a sub-contractor at N$6.50 per unit fororders up to 7,000 units. The following price - demand relationship is based on a market survey and past experience: REQUIRED 1.1. TOTAL MARKS Selling price (N$) Units Standard cost per unit N$ 1.30 2.50 6.00 1.00 10.80 24 5,000 22 20 7,000 10,000 15 12 000 Determine the selling price at which profit should be maximised. Marks 7 7

Answer rating: 100% (QA)

Question Step 1 Working note 1 Calculation of total cost for the first 5000 units 1080 5000 units 54... View the full answer