3.1 Explain what is meant by the phrase price elasticity of demand of 2.5. (2 marks)

3.2 List other general internal and external factors that can influence sales. (2 marks)

3.3 Calculate the budgeted profit for the next financial year (2023) if New-Direction (Pty) Ltd maintains a selling price of R20 per unit. Your response should include the assumption that competitors will increase their prices by 7 percent. (6 marks)

3.4 Calculate the budgeted profit for the next financial year (2023) if New-Direction (Pty) Ltd also raises its selling price by 7 percent. (4 marks)

3.5 Recommend to the board of directors whether New-Direction (Pty) Ltd should maintain the R20 selling price or raise the sales price by 7 percent. Support your answer with the necessary calculations. (2 marks)

You are the management accountant of New-Direction (Pty) Ltd, a small, mediumsized company. You have been asked to provide budgetary information and advice to the board of directors for a meeting where they will decide the pricing of product X for the next financial year (2023). The following information regarding product X is available from the records of New-Direction (Pty) Ltd: You noted that between the previous and current financial year, there was a 5 percent general costs inflation and it is forecasted that costs (variable and fixed) will rise by a further 7 percent in the next financial year (2023). A survey conducted by the consultant economist has found that the demand for product X is elastic, with an estimated price elasticity of demand of 2.5 . Additional Information: 1. Total market volume for product X will remain unchanged and unit sales of NewDirection (Pty) Ltd will not decline as a result of both the entity and its competitors increasing prices by 7 percent. 2. New-Direction (Pty) Ltd's sales volume and production volume will increase if competitors increase their prices by 7 percent. 3. The estimate of the elasticity is considered correct. 4. All costs are affected by the same rate of inflation. 5. All other factors remain constant so that sales will not be influenced. 3.1 Explain what is meant by the phrase "...price elasticity of demand of 2.5." (2 marks) 3.2 List other general internal and external factors that can influence sales. (2 marks) 3.3 Calculate the budgeted profit for the next financial year (2023) if New-Direction (Pty) Ltd maintains a selling price of R20 per unit. Your response should include the assumption that competitors will increase their prices by 7 percent. (6 marks) 3.4 Calculate the budgeted profit for the next financial year (2023) if New-Direction (Pty) Ltd also raises its selling price by 7 percent. (4 marks) 3.5 Recommend to the board of directors whether New-Direction (Pty) Ltd should maintain the R20 selling price or raise the sales price by 7 percent. Support your answer with the necessary calculations. (2 marks) Round to two decimals where applicable