QUESTION 2[20 marks] Liguanea Pharmaceuticals Limited (LPL) currently sells a product the "sovereign" for...
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Accounting
QUESTION 2[20 marks]
Liguanea Pharmaceuticals Limited (LPL) currently sells a product the "sovereign" for $2200. This price is based on the annual demand. Analysis indicates that if the company increase the price by $100 annual demand will fall by 400 units. At the current price 4,000 unit are demanded. The product has the following cost structure per unit:
Direct material - $225
Direct labour - $75
Direct expenses - $150
Variable overheads - $90
Fixed overheads - $300
Variable selling expense - $60
Fixed selling expenses - $450
Management wants to know the optimal production quantity and its maximum profits.
Required:
(a)Determine the price equation (4 marks)
(b)Determine the optimal price and quantity (6 marks)
(c)Determine the optimal profits (4 marks)
(d)Explain briefly the concept of price elasticity of demand and discuss briefly how it impacts pricing decisions(6 marks)
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