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Bipo ltd is planning to launch a new product into the market. In order to determine the introduction selling price of the product, a

Bipo ltd is planning to launch a new product into the market. In order to determine the introduction selling price of the product, a research was undertaken. The following information has been obtained from the research under two possible selling prices; Sh.300 and Sh.350 per unit. Probability 0.4 0.5 0.1 Selling price per unit Sh.300 Sales volume (units) 120,000 110,000 140,000 Selling price per unit Sh.350 Sales volume (units) 108,000 100,000 94,000 Probability 0.3 0.3 0.4 Additional information. 1. The variable production cost would be sh.120 per unit for the production volumes up to and including 100,000 units each year. However, if production exceeds 100,000 units each year, the variable production cost per unit would fall to sh.110 for all units produced. 2. Advertising cost would be sh.9, 000,000 per annum at a selling price of sh.300 and sh.9,700,000 per annum at a selling price of 350. 3. Fixed production cost would be sh.4, 500,000 per annum. Required: Advise the management of BIPO ltd on the optimal selling price per unit for the new product using decision tree. (15 marks)

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