Question
Need help wording an answer. Question- Increase the price by 15%. Due to market sensitivity, the marketing manager predicts that if this policy is adopted
Need help wording an answer.
Question- Increase the price by 15%. Due to market sensitivity, the marketing manager predicts that if this policy is adopted the sales will decline by 10%. Assume this policy change is effective6 from May
Proposed answer-
Regarding the next proposed change, it can be reasonably justified that where there is a price increase, there will be a decline in sales. With the new policy change taken from May, there would be an increase in Total Sales Revenue for Fantastic Ltd. of $26,950. Although not a substantial difference, it would be a positive move for the business as the new budget displays that they would be charging a more appropriate price per unit due to their current cost per unit being higher than what they are currently selling it for. While there is a decline in Budget Sales of units for each of the months with the proposed change, there is also an increase in Sales Revenue for each. In Part B-scenario g, it can be seen that ABC costing method undercosts the productand so if Fantastic sticks with Traditional Costing methods, the cost per unit is higher than the previous selling prices. Thus, this new implementation is recommended because increasing the price means increasing profitability and Fantastic Ltd. is no longer selling its tables at a loss.
(further info, ABC costing is showing cost as $214 per unit and traditional cogs is $355, the business is making losses with a sale price of $350 so we assume ABC method undercosts the product in this senairo)
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