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PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of product B. Fixed costs are $800,000 per annum.
The management of PL is considering reducing the selling price per unit to $48. The estimated levels of demand at the revised selling price and the probabilities of them occurring are as follows:
Calculate the probability that the profit will increase from its current level if the selling price is reduced to $48.
Suggested Answer: A
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8 comments · newest first
KR
Kristin
12 months ago
90% sounds too optimistic; I’d go with 40%.
JE
Jeffrey
1 year ago
Wait, how can they be so sure about those probabilities?
ER
Eric
1 year ago
Definitely feels like a 70% chance to me!
AN
Annabelle
1 year ago
I think the probability is closer to 50%.
CH
Chaya
1 year ago
Current contribution is $2,880,000 from 90,000 units.
AR
Ardella
1 year ago
I'm a bit unsure about this one. I'll need to review my notes on Oracle VM Manager's capabilities to make sure I select the right three attributes.
KR
Kris
1 year ago
Okay, the key benefits of activity-based budgeting seem to be that it links resource allocation to the strategic plan and provides a clearer framework for understanding the link between costs and activities. I think I've got a good handle on this.
AZ
Azzie
1 year ago
This question seems straightforward, but I want to make sure I understand the key difference between profit and shareholder wealth before selecting an answer.