An entity has a market-based pricing structure that is based on the quantity demanded. The entity's...

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An entity has a market-based pricing structure that is based on the quantity demanded. The entity's policy is to always keep total cost of the product at 80% of market price. The entity uses the traditional costing system to establish cost. The budgeted overheads for the period were estimated at $7,500,000. Meanwhile, the budgeted activity level is expected to be 375,000 direct labour hours. Information relating to the total cost of the product at different demand levels are shown below: Demand in quantity(units) 2,500 3,000 Direct material 375,000 450,000 Direct labour ($50 per hour) 1,200,000 1,500,000 Direct expense 675,000 900,000 Fixed selling expense 4,500,000 4,500,000 Required: (a) Determine the straight-line demand/price equation based on the selling prices and quantity demanded. (b) Using the equation to predict quantity demanded when selling price is $4,617.50. (c) Explain briefly the concept of price elasticity of demand and discuss briefly how it impacts pricing decisions. An entity has a market-based pricing structure that is based on the quantity demanded. The entity's policy is to always keep total cost of the product at 80% of market price. The entity uses the traditional costing system to establish cost. The budgeted overheads for the period were estimated at $7,500,000. Meanwhile, the budgeted activity level is expected to be 375,000 direct labour hours. Information relating to the total cost of the product at different demand levels are shown below: Demand in quantity(units) 2,500 3,000 Direct material 375,000 450,000 Direct labour ($50 per hour) 1,200,000 1,500,000 Direct expense 675,000 900,000 Fixed selling expense 4,500,000 4,500,000 Required: (a) Determine the straight-line demand/price equation based on the selling prices and quantity demanded. (b) Using the equation to predict quantity demanded when selling price is $4,617.50. (c) Explain briefly the concept of price elasticity of demand and discuss briefly how it impacts pricing decisions.

Answer rating: 100% (QA)

a To determine the straightline demandprice equation we can use the information provided for two data points quantity demanded and total cost of the product at those demand levels Lets use the followi... View the full answer