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Ben John (BJ) Limited produces light fittings, known for their constant design innovation and short product market life cycle. The company launched the new product using a market skimming pricing policy. Explain, with reasons, the likely changes that will occur in the unit selling price and unit production costs of the product as it moves through each of the four stages of its product life cycle:
a. Introduction;
b. Growth;
c. Maturity;
d. Decline.
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KK Plc. buys small tablet computers which it customizes for the Nigerian market and then resells to electronics retailers. Although a detailed variance analysis is carried out each month, the CEO John, T, has become concerned that no one has a clear responsibility for taking action in response to this analysis or for using it to carry out an ex-post analysis of the outcome of important decisions.
The following is an extract from last month’s budget:
| Model | A | B | C |
|---|---|---|---|
| Selling price/unit (N) | 1,000 | 1,250 | 1,500 |
| Variable cost/unit (N) | 400 | 500 | 600 |
| Sales (units) | 25,000 | 40,000 | 15,000 |
The budgeted fixed costs were N12,500,000 for the month, which were not dependent on the mix or quantities of products sold. When the budget was being prepared, it was estimated that the total size of the market (including sales by the company and the competitors) would be 400,000 units.
Shortly after the beginning of the month, the marketing director, Okon Nelson, decided that a change of pricing strategy was necessary in response to the recessionary economic conditions. The price of Model A was reduced by 10%, and the prices of Models B and C were each reduced by 20%. The company was partly successful in passing on the impact of these price reductions to its suppliers, and as a consequence, the variable cost per unit for all three models was reduced by 5%. Actual fixed costs were 5% higher than budgeted because of the marketing costs associated with publishing the price reductions.
As a result of the recessionary conditions, the actual total market size was just 200,000 units. The actual quantities sold by the company were as follows:
Actual quantities sold by the company were as follows:
| Model | Sales (units) |
|---|---|
| A | 14,800 |
| B | 29,500 |
| C | 11,700 |
Required:
a. Present a comprehensive analysis of variances, reconciling the budgeted and actual profit for last month in as much detail as possible from the information provided. (25 Marks)
b. Evaluate the financial success (or otherwise) of the decision to change the pricing strategy and assess whether the difference between the budgeted and actual performance was attributable mainly to luck or to factors within the company’s control. (5 Marks)
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Graphix Communication Group Limited (GCGL) is a magazine publishing company. It comprises a number of different divisions, each publishing magazines in a different sector. GCGL is now considering publishing Financial Magazine. The Financial Magazine market is very competitive with a number of well-established titles already being published by GCGL’s competitors.
Financial Magazine is a monthly magazine.
GCGL has therefore commissioned an advertising campaign to launch its Financial Magazine. The price of the Financial Magazine has been set at full cost plus a mark-up of 20%.
Forecast variable cost per copy of the Financial Magazine:
Cost Description GH¢
Paper 0.83
Ink See note (i)
Machine cost 0.22
Other variable cost 0.15
The following additional information is available:
i) Each Financial Magazine needs 0.2 litres of ink. However, 10% of the ink input to the printing process is wasted. Ink costs GH¢5.40 per litre.
ii) In month 1, GCGL expects to sell 50,000 copies of the magazine to new customers at this price.
iii) After their first month of sales, GCGL expects 90% of first month’s customers to purchase the Financial Magazine in month 2. After the second month of purchase, GCGL expects to retain 85% of month 2 customers in subsequent months.
iv) As the magazine circulation area increases, sales to additional new customers in month 2 will be 20% of month 1 sales figure. 90% of this would be retained in month 3.
v) Sales to additional new customers in month 3 would be 30% of month 1 sales figures.
vi) Fixed overhead costs are apportioned by GCGL to the Financial Magazines based on first month sales volume. Total budgeted annual fixed overhead is GH¢18,000,000 and total budgeted annual magazine sales, including the Financial Magazine, is 12,000,000 copies.
vii) The sales price of the Financial Magazine will remain unchanged throughout the first three months.
Required:
a) Discuss TWO (2) advantages and TWO (2) disadvantages of the managing director’s pricing strategy in the circumstances described above.
(4 marks)
b) Produce a statement that shows the total profit for the first three months of Financial Magazine.
(10 marks)
c) Calculate the number of copies of the Financial Magazine that need to be sold to achieve a profit of GH¢100,000.
(6 marks)
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You are the Accounts Officer of Seafarers Cafe, a company that sells cocoa drink to a wide range of consumers. The company sells a cup of cocoa drink for GH¢2.00, which yielded a sales output of 10 million cups for the year ending 2017. As part of a promotional package to celebrate its silver jubilee, the company reduced its price to GH¢1.50, which increased its total sales output to 15 million cups for the year ending 2018.
Required:
i) Calculate the Café’s price elasticity of demand. (4 marks)
ii) Explain SIX (6) factors that might have determined the company’s price elasticity of demand. (10 marks)
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Business organisations consider several factors when setting prices for their products. This is to enable them remain competitive and also remain attractive to customers.
Required: State FIVE (5) of these factors. (5 marks)
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You are the Account Officer of Dinke Café, a company that sells cocoa drink to a wide range of consumers. The company sells a cup of cocoa drink for GH¢2, which yielded a sales output of 10 million cups for the year ending 2021. As part of a promotional package to celebrate its silver jubilee, the company reduced its price to GH¢1.50, which increased its total sales output to 15 million cups for the year ending 2022.
Required:
i) Calculate the price elasticity of demand of Dinke Café.
(4 marks)
ii) Explain THREE (3) factors that might have determined the company’s price elasticity of demand.
(6 marks)
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Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Ben John (BJ) Limited produces light fittings, known for their constant design innovation and short product market life cycle. The company launched the new product using a market skimming pricing policy. Explain, with reasons, the likely changes that will occur in the unit selling price and unit production costs of the product as it moves through each of the four stages of its product life cycle:
a. Introduction;
b. Growth;
c. Maturity;
d. Decline.
Find Related Questions by Tags, levels, etc.
KK Plc. buys small tablet computers which it customizes for the Nigerian market and then resells to electronics retailers. Although a detailed variance analysis is carried out each month, the CEO John, T, has become concerned that no one has a clear responsibility for taking action in response to this analysis or for using it to carry out an ex-post analysis of the outcome of important decisions.
The following is an extract from last month’s budget:
| Model | A | B | C |
|---|---|---|---|
| Selling price/unit (N) | 1,000 | 1,250 | 1,500 |
| Variable cost/unit (N) | 400 | 500 | 600 |
| Sales (units) | 25,000 | 40,000 | 15,000 |
The budgeted fixed costs were N12,500,000 for the month, which were not dependent on the mix or quantities of products sold. When the budget was being prepared, it was estimated that the total size of the market (including sales by the company and the competitors) would be 400,000 units.
Shortly after the beginning of the month, the marketing director, Okon Nelson, decided that a change of pricing strategy was necessary in response to the recessionary economic conditions. The price of Model A was reduced by 10%, and the prices of Models B and C were each reduced by 20%. The company was partly successful in passing on the impact of these price reductions to its suppliers, and as a consequence, the variable cost per unit for all three models was reduced by 5%. Actual fixed costs were 5% higher than budgeted because of the marketing costs associated with publishing the price reductions.
As a result of the recessionary conditions, the actual total market size was just 200,000 units. The actual quantities sold by the company were as follows:
Actual quantities sold by the company were as follows:
| Model | Sales (units) |
|---|---|
| A | 14,800 |
| B | 29,500 |
| C | 11,700 |
Required:
a. Present a comprehensive analysis of variances, reconciling the budgeted and actual profit for last month in as much detail as possible from the information provided. (25 Marks)
b. Evaluate the financial success (or otherwise) of the decision to change the pricing strategy and assess whether the difference between the budgeted and actual performance was attributable mainly to luck or to factors within the company’s control. (5 Marks)
Find Related Questions by Tags, levels, etc.
Graphix Communication Group Limited (GCGL) is a magazine publishing company. It comprises a number of different divisions, each publishing magazines in a different sector. GCGL is now considering publishing Financial Magazine. The Financial Magazine market is very competitive with a number of well-established titles already being published by GCGL’s competitors.
Financial Magazine is a monthly magazine.
GCGL has therefore commissioned an advertising campaign to launch its Financial Magazine. The price of the Financial Magazine has been set at full cost plus a mark-up of 20%.
Forecast variable cost per copy of the Financial Magazine:
Cost Description GH¢
Paper 0.83
Ink See note (i)
Machine cost 0.22
Other variable cost 0.15
The following additional information is available:
i) Each Financial Magazine needs 0.2 litres of ink. However, 10% of the ink input to the printing process is wasted. Ink costs GH¢5.40 per litre.
ii) In month 1, GCGL expects to sell 50,000 copies of the magazine to new customers at this price.
iii) After their first month of sales, GCGL expects 90% of first month’s customers to purchase the Financial Magazine in month 2. After the second month of purchase, GCGL expects to retain 85% of month 2 customers in subsequent months.
iv) As the magazine circulation area increases, sales to additional new customers in month 2 will be 20% of month 1 sales figure. 90% of this would be retained in month 3.
v) Sales to additional new customers in month 3 would be 30% of month 1 sales figures.
vi) Fixed overhead costs are apportioned by GCGL to the Financial Magazines based on first month sales volume. Total budgeted annual fixed overhead is GH¢18,000,000 and total budgeted annual magazine sales, including the Financial Magazine, is 12,000,000 copies.
vii) The sales price of the Financial Magazine will remain unchanged throughout the first three months.
Required:
a) Discuss TWO (2) advantages and TWO (2) disadvantages of the managing director’s pricing strategy in the circumstances described above.
(4 marks)
b) Produce a statement that shows the total profit for the first three months of Financial Magazine.
(10 marks)
c) Calculate the number of copies of the Financial Magazine that need to be sold to achieve a profit of GH¢100,000.
(6 marks)
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You are the Accounts Officer of Seafarers Cafe, a company that sells cocoa drink to a wide range of consumers. The company sells a cup of cocoa drink for GH¢2.00, which yielded a sales output of 10 million cups for the year ending 2017. As part of a promotional package to celebrate its silver jubilee, the company reduced its price to GH¢1.50, which increased its total sales output to 15 million cups for the year ending 2018.
Required:
i) Calculate the Café’s price elasticity of demand. (4 marks)
ii) Explain SIX (6) factors that might have determined the company’s price elasticity of demand. (10 marks)
Find Related Questions by Tags, levels, etc.
Business organisations consider several factors when setting prices for their products. This is to enable them remain competitive and also remain attractive to customers.
Required: State FIVE (5) of these factors. (5 marks)
Find Related Questions by Tags, levels, etc.
You are the Account Officer of Dinke Café, a company that sells cocoa drink to a wide range of consumers. The company sells a cup of cocoa drink for GH¢2, which yielded a sales output of 10 million cups for the year ending 2021. As part of a promotional package to celebrate its silver jubilee, the company reduced its price to GH¢1.50, which increased its total sales output to 15 million cups for the year ending 2022.
Required:
i) Calculate the price elasticity of demand of Dinke Café.
(4 marks)
ii) Explain THREE (3) factors that might have determined the company’s price elasticity of demand.
(6 marks)
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
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