ACCA Applied Knowledge · Management Accounting · Budget preparation
Dalmar Co sells product P at a price of $40 per unit. Budgeted sales volume for the year is 50,000 units. Market research suggests that a price rise to $44 would reduce volume by 10%. What would be the budgeted sales revenue at the higher price?
Budgeted revenue at the higher price is $1,980,000. Volume falls 10% from 50,000 to 45,000 units, and each unit sells for $44, so 45,000 times $44 gives $1,980,000. Ignoring the fall in demand would overstate revenue at $2,200,000.
- A$1,800,000
- B$1,980,000Correct
- C$2,000,000
- D$2,200,000
Explanation
Volume = 50,000 x 0.9 = 45,000 units. Revenue = 45,000 x $44 = $1,980,000. $2,200,000 ignores the volume fall; $1,800,000 applies the volume fall to the original price.
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