1. Decision making Techniques
a. Make or Buy
i. Scenario1: Cost of making > Cost of Buying = Buy
ii. Scenario 2: Cost of making < Cost of buying (additional cost of
buying compare with fixed cost saving )
iii. Scenario But with limiting factor (Extra cost of buying / limiting
factor )
b. Further process: Only further process if extra revnue > extra cost
“ignore joint cost”
c. Shutdown
d. Contracts : Bidding
- CVP analysis looks at relation between (Cost, volume and profit).
- It is one of the decision making techniques that helps to achieve the
objective of maximizing profit by considering factors such as C/S ratios.
- Also, CVP looks introduced a breakeven point where your contribution =
Marginal cost and this helps in identifying the margin of seafty.
-
Pricing
- 4C ( Cost, Corporate objective, customer and competition)
- Pricing covers your cost ( over short term you would want your price to
cover your variable cost. And in the long term cover your fixed cost.
- Is the objective to increase market share ? is our product unique
o Elasticity of Demand
 Elastic: You are very sensitive to price. Results are greater then
1. Suitable for product that has a lot of alternatives that the
customer can choose
 Inelastic: My product is highly demanded so increase in price
will have very minimum impact on my sales.
o Competition: Packaging, support, better quality as well.
- Linear relation between price, quantity and demand
o P=a-bq (a is my maximum demand is zero, b is the slope of the line
(Change in price / change in quantity demand. Q quantity
- If the company aiming to maximize profit
o Marginal Revenue = Marginal cost
o MR= a-2bq
o MC=VC
- Pricing strategy:
o Penetration
o Price discrimination
o Product line pricing
o Complementary pricing
Q363
Part 1)