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Gordeev Ltd. has a market-based pricing structure that is based on the quantity of products demanded. The entity's policy is to always keep total cost
Gordeev Ltd. has a market-based pricing structure that is based on the quantity of products 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 $1,250,000. Meanwhile, the budgeted activity level is expected to be 62,500 direct labour hours. Information relating to the total cost of the product at different demand levels are shown below: Demand in quantity(units) 1,250 1,500 Direct material $62,500 $75,000 Direct labour ($25 per hour) $200,000 $250,000 Direct expense $112,500 $ 150,000 Fixed selling expense $750,000 $750,000 Required: a) Determine the straight-line demand/price equation based on the selling prices and quantity demanded. (16 marks) b) Using the equation to predict quantity demanded when selling price is $2,308.75. (3 marks) c) Explain briefly the concept of price elasticity of demand and discuss briefly how it impacts pricing decisions
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