MAC3703 May/June 2025 Exam Solutions
QUESTION 1: Multiple Choice Questions (20 marks)
1.1. B - Storming
1.2. C - Horizontal
1.3. A - I, II, and IV
1.4. A - Cost Model
1.5. B - Explanation
1.6. D - 1-iv, 2-iii, 3-i, 4-ii
1.7. B - Mediation
1.8. D - Price increase of 7.5% with elasticity of 0.9
1.9. C - Social and Relationship Capital
1.10. B - Knowledge sharing through collaborative platforms
QUESTION 2: Pricing Strategies and Target Costing (27 marks)
Part A: Full Cost-Plus Pricing (6 marks)
Item Calculation Amount (R)
Direct materials Given 60
Direct labour Given 60
Variable overheads Given 16.67
Total variable cost 136.67
Fixed overhead calculation:
Fixed overheads per month Given 45,000
Budgeted labour hours Given 2,000
, Absorption rate per hour 45,000 ÷ 2,000 22.5
Labour time per package 20 minutes ÷ 60 0.333 hours
Fixed overhead per package 22.50 × 0.333 7.5
Full production cost per
136.67 + 7.50 144.17
package
Profit margin (40% on cost) 144.17 × 0.40 57.67
Selling price per package 144.17 + 57.67 201.84
Part B: Revenue Maximization (8 marks)
Item Calculation Amount
Demand function
derivation:
Base price Given R70
Base demand Given 80,000 boxes
Price change impact -8,000 boxes per R5 increase
Slope (b) -8,000 ÷ 5 -1,600
Intercept (a) 80,000 + (1,600 × 70) 192,000
Demand function Q = 192,000 - 1,600P
Revenue function:
Revenue function R = P × Q = P(192,000 - 1,600P)
Revenue function R = 192,000P - 1,600P²
Profit maximization:
Marginal Revenue (MR) 192,000 - 3,200P
Marginal Cost (MC) Variable cost per unit R30
Set MR = MC 192,000 - 3,200P = 30
Solve for P 3,200P = 191,970
Optimal price 191,970 ÷ 3,200 R60
QUESTION 1: Multiple Choice Questions (20 marks)
1.1. B - Storming
1.2. C - Horizontal
1.3. A - I, II, and IV
1.4. A - Cost Model
1.5. B - Explanation
1.6. D - 1-iv, 2-iii, 3-i, 4-ii
1.7. B - Mediation
1.8. D - Price increase of 7.5% with elasticity of 0.9
1.9. C - Social and Relationship Capital
1.10. B - Knowledge sharing through collaborative platforms
QUESTION 2: Pricing Strategies and Target Costing (27 marks)
Part A: Full Cost-Plus Pricing (6 marks)
Item Calculation Amount (R)
Direct materials Given 60
Direct labour Given 60
Variable overheads Given 16.67
Total variable cost 136.67
Fixed overhead calculation:
Fixed overheads per month Given 45,000
Budgeted labour hours Given 2,000
, Absorption rate per hour 45,000 ÷ 2,000 22.5
Labour time per package 20 minutes ÷ 60 0.333 hours
Fixed overhead per package 22.50 × 0.333 7.5
Full production cost per
136.67 + 7.50 144.17
package
Profit margin (40% on cost) 144.17 × 0.40 57.67
Selling price per package 144.17 + 57.67 201.84
Part B: Revenue Maximization (8 marks)
Item Calculation Amount
Demand function
derivation:
Base price Given R70
Base demand Given 80,000 boxes
Price change impact -8,000 boxes per R5 increase
Slope (b) -8,000 ÷ 5 -1,600
Intercept (a) 80,000 + (1,600 × 70) 192,000
Demand function Q = 192,000 - 1,600P
Revenue function:
Revenue function R = P × Q = P(192,000 - 1,600P)
Revenue function R = 192,000P - 1,600P²
Profit maximization:
Marginal Revenue (MR) 192,000 - 3,200P
Marginal Cost (MC) Variable cost per unit R30
Set MR = MC 192,000 - 3,200P = 30
Solve for P 3,200P = 191,970
Optimal price 191,970 ÷ 3,200 R60
