Financial problem - Assignment Example

Managing Financial Resources Case 2 a The selling price of product A as calculated from the given data is £8.8 per unit. The calculations have been shown in “Note 1” below to help understand how the price is arrived at.(b): The Ideal Gift Products should now decide to lower its selling price for product A as the introduction of a similar product by the competitor at a fairly low price of £8.25 will surely decrease the demand for product A of the Ideal Gift Products . It would also be proper considering that the competitor’s product is a new one and hence will take some time to get success, therefore Ideal Gift Products need not lower the price below that of the competitors but it has to make sure that the price stays somewhere near to £8.

25 as fixed by the rival.(c): Since the competitor has fixed a price lower than that of Ideal Gift Product hence, a large amount of consumers will shift to the new lower price product. This will make the Ideal Gift Product to lower its markup in order to attract back the shifting customers.2. (a): The break-even point is a stage where the selling price of a product neither result in a profit, nor a loss (ICAP, 2013, p. 374). For the given data in question 2, the break-even point is 31 units, which cost £15,500 to the company (Note 2).

The same amount will be the sales as this is the company’s break-even point for the month.(b): The mark-up that the company needs to add to marginal cost for break-even shall be £10,000 (Note 3).Working Notes: (All amounts in £)(1) Selling price of product ASale price = cost per unit + 60% of the cost = 5.5 + 60% of 5.5 = 8.8(2) Break-even pointAt break-even point;Fixed cost = selling price - variable costFixed cost + variable cost = Selling priceSelling price = 10,000 + (11*500) Selling price = 15,500Break-even = 15,500/500Break-even = 31(3) Profit mark-up that the company needs to add to the marginal costs at break-evenAs, at break-even pointSelling price = Fixed cost + variable costTherefore, to attain break-even, the markup needed to be added to the marginal cost (variable cost) shall be the fixed cost (i.e., £10,000).

ReferencesThe institute of chartered accountants of Pakistan(ICAP), (2013), Cost and Management Accounting. United kingdom, Emile Woolf International.