Trusted since 2008
LoginRegister
Study resources on Kenyaplex

Get ready-made curriculum aligned revision materials

Exam papers, notes, holiday assignments and topical questions – all aligned to the Kenyan curriculum.

Browse exam papers
Or go directly to:
Class notes Holiday assignments Topical questions Other resources

A manufacturer produces and sells two products, A and B. The unit variable cost is sh.12 and sh.8 for A and B respectively. A review of...

A manufacturer produces and sells two products, A and B. The unit variable cost is sh.12
and sh.8 for A and B respectively. A review of selling prices is in progress and it has
been estimated that, for each product and increase in the selling price would result in a
fall in demand of Sh.500 units per every Sh.1 increase in price and similarly a decrease of
Sh.1 in price would result in an increase in demand of 500 units.
fig535250.png
Required:
Calculate the profit-maximizing price for reach product.

Answers

Kavungya
The demand function can be determine as follows:
P = A – bV
Where P is the price per unit
V is the volume of sales at that price
A is the price at which V = O (Maximum price)
b is the rate at which the price falls for volume increases a proportion of sales volume.
fig535251.png
fig635251.png
Kavungya answered the question on May 3, 2021 at 11:52

Answer Attachments

Next: The Z division of XYZ Ltd., produces a component which it sells externally, and can also be transferred to other divisions within the organization. The division...

Previous: Muthothi Ltd. Operates a conventional stock control system based on re-order levels and Economic Order Quantities (EOQ). The various control levels were set originally based on estimates...

View more CPA Advanced Management Accounting Questions and Answers  |  Return to Questions Index

Exams With Marking Schemes

Related Questions

  • The Z division of XYZ Ltd., produces a component which it sells externally, and can also be transferred to other divisions within the organization. The division... (Solved)

    The Z division of XYZ Ltd., produces a component which it sells externally, and can also
    be transferred to other divisions within the organization. The division has set a
    performance target for the coming financial year of residual income of Shs. 5,000,000.
    The following budgeted information relating to Z division has been prepared for the
    coming financial year.
    1. Maximum production/sales capacity 800,000 units.
    2. Sales to external customers: 500,000 units at Sh.37.
    3. Variable cost per component Sh.25.
    4. Fixed costs directly attributable to the division Sh.1,400,000.
    5. Capital employed: Sh.20,000,000 with cost of capital of 13%
    The X division of XYZ Ltd has asked Z division to quote a transfer price for units of the
    component.
    Required:
    i Calculate the transfer price per component which Z division should quote to X
    division so that its residual income target is achieved.
    ii Explain why the transfer price calculated in (i) above may lead to sub -optimal
    decision making from the point of view of XYZ Ltd taken as a whole.

    Date posted: May 3, 2021 .    Answers (1)