28. Z Ltd. is considering various product pricing and material purchasing options with regard to a new product it has developed. Estimates of demand and costs are as follows:

Each unit requires 3 kg of material and because of shortage problems any unused material must be sold at Re 1 per kg. The sole suppliers of material offer three purchase options, which must be decided at the outset, as follows:
(i) Any quantity at Rs 3 per kg, or (ii) A price of Rs 2.75 per kg for a minimum quantity of50,000 kg, or (iii) A price of Rs 2.50 per kg for a minimum quantity of70,000 kg.
You are required, assuming that the company is risk neutral, to

(a) prepare calculations to show what pricing and purchasing decisions the company should make, clearly indicating the recommended decisions;

(b) calculate the maximum price You would pay for perfect information as to whether the demand would be optimistic or most likely or pessimistic.

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If selling price per unit is Probability Rs 15 per unit Sales volume (000 units) Rs 20 per unit Sales volume (000 units) Forecasts Optimistic 0.3 Most likely 0.5 Pessimistic 0.2 36 28 18 28 23 13 Variable manufacturing costs (excluding materials) per unit Advertising and selling costs General fixed cost Rs 3 Rs 25,000 Rs 40,000 Rs 3 Rs 96,000 Rs 40,000