Richard Company Limited manufactures and distributes a new drug (Classic) which relieves tension and reduces inhibitions. The company's target market is the entertainment industry in the United Kingdom. The company prices the drug at full cost plus 100%. The current variable costs of production are as follow Selling price Ingredient X: 8 mga @10 per mg Labour 5 minutes 80 per hour Ampoules 1 @ 1.50 per ampoule 200 220 240 Demand uns 17000 16,000 15,000 11 000 5,000 7.000 The company's fixed cost (which includes the cost of distribution) are currently E320,000 per annum and absorbed based on budgeted production for the year 280 300 The company is currently setting the price of the drug for the coming year and wishes to take into account expected price increases attached to the various elements of cost. These are as follows: Element of cost Ingredients Labour rate Ampoules Fixed costs Expected price increase 10% 50% 33 % 12,2% d) The profil volume 2 Marks a) The maximum amount that the company should be prepared to spend advertising to increase sales to 10,000 12 Narks) 1 The optimal selling price and production level with supporting calculations) assuming that the demand pattern shown above is accurate 10 Warks) 9) The additional profitary compared to the selling price calculated in (a) above (2 Marks) Total 30 Marks) LOS 1,2,3,485) The budgeted figure of the company's production and sales for the coming year is 9,000 units of Classic drug. Having received the projected profil figure for the coming year, the CEO has asked the market protection unit to help in producing a more sophisticated approach to pricing. The unit has investigated the market and believes that, with some influence being exercised on clients, the following demand pattern will emerge: Page 5 of 11 1637) Page 4 of 11 116371 Richard Company Limited manufactures and distributes a new drug (Classic) which relieves tension and reduces inhibitions. The company's target market is the entertainment industry in the United Kingdom. The company prices the drug at full cost plus 100%. The current variable costs of production are as follow Selling price Ingredient X: 8 mga @10 per mg Labour 5 minutes 80 per hour Ampoules 1 @ 1.50 per ampoule 200 220 240 Demand uns 17000 16,000 15,000 11 000 5,000 7.000 The company's fixed cost (which includes the cost of distribution) are currently E320,000 per annum and absorbed based on budgeted production for the year 280 300 The company is currently setting the price of the drug for the coming year and wishes to take into account expected price increases attached to the various elements of cost. These are as follows: Element of cost Ingredients Labour rate Ampoules Fixed costs Expected price increase 10% 50% 33 % 12,2% d) The profil volume 2 Marks a) The maximum amount that the company should be prepared to spend advertising to increase sales to 10,000 12 Narks) 1 The optimal selling price and production level with supporting calculations) assuming that the demand pattern shown above is accurate 10 Warks) 9) The additional profitary compared to the selling price calculated in (a) above (2 Marks) Total 30 Marks) LOS 1,2,3,485) The budgeted figure of the company's production and sales for the coming year is 9,000 units of Classic drug. Having received the projected profil figure for the coming year, the CEO has asked the market protection unit to help in producing a more sophisticated approach to pricing. The unit has investigated the market and believes that, with some influence being exercised on clients, the following demand pattern will emerge: Page 5 of 11 1637) Page 4 of 11 116371
