ACCA PM Syllabus C. Decision-making Techniques - The Straight Line Demand Equation - Notes 3 / 6
Equation of a straight-line
The equation of a straight line is represented by the following equation: -
The gradient of the line =
ΔP = -b
----
ΔQ
Total cost function
The total cost function is linear: -
‘a’ is the fixed cost per period
‘b’ is the variable cost per unit
‘x’ is the activity level
‘y’ is the total cost = fixed cost + variable cost
Cost equations including volume-based discounts
Suppliers often offer discounts to encourage the purchase of increased volumes.
Where volume-based discounts are offered, a total cost equation can be derived for each volume range.
Illustration
Variable Cost: $5 up to 10,000 units. 10% discount applies on all units purchased over 10,000 units.
Total Fixed Costs: $100,000
x ≤ 10,000 , TC = 100,000 + 5x
x ≥ 10,001 , TC = 100,000 + 4.5x
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Syllabus C. Decision-making Techniques
C4. Pricing Decisions
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Syllabus C. Decision-making Techniques
C4. Pricing Decisions