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Ella Ltd recently started to manufacture and sell product DG The variable cost of product DG is £4 per unit and the total weekly fixed costs are £18 000 The company has set the

Ella Ltd recently started to manufacture and sell product DG. The variable cost of product DG is £4 per unit and the total weekly fixed costs are £18 000. The company has set the ini- tial selling price of product DG by adding a mark up of 40% to its total unit cost. It has

assumed that production and sales will be 3000 units per week. The company holds no stocks of product DG.

Required

1 Calculate for product DG:

a the initial selling price per unit; and b the resultant weekly profit.

The management accountant has established that a linear relationship between the unit selling price (P in £) and the weekly demand (Q in units) for product DG is given by:

P = 20 – 0.002Q

The marginal revenue (MR in £ per unit) is related to weekly demand (Q in units) by the equation:

MR = 20 – 0.004Q

2 Calculate the selling price per unit for product DG that should be set in order to max- imise weekly profit.

3 Distinguish briefly between penetration and skimming pricing policies when launching a new product.

Jun 24 2020 View more View Less