05.06-Section B
Question 5
This was a question involving sales pricing. Parts (a) and (c) were well-answered by the majority of candidates.
Part (a) involved the calculation of a total cost plus price and the resultant weekly profit. Common errors from weaker candidates were:
using 'variable cost plus' instead of 'total cost plus', as clearly stated in the question calculating the total weekly sales and not the selling price per unit, as required an inability to calculate a mark-up of 40% correctly. Part (b) required the calculation of a selling price which maximised weekly profits using marginal analysis. This topic had been flagged by a recent article in student accountant, and by multiple-choice questions set in Section A of the previous examination. There were some excellent answers from well-prepared candidates but many struggled with part (b). Common errors included:
failure to recognise that the marginal cost was equal to %26pound;4 - the variable cost per unit given in the question setting the marginal revenue equal to zero instead of setting the marginal cost equal to the marginal revenue for profit maximisation using the 3,000 units given in the question as the profit-maximising volume and calculating a selling price of %26pound;14 as in (a). Part (c), about penetration and skimming price policies, was generally well-answered.
