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6) Office Enterprises (OE) produces a line of metal office file cabinets. The company?s...

Question:

6) Office Enterprises (OE) produces a line of metal office file cabinets. The company's economist, having investigated a large number of past data, has established the following equation of demand for these cabinets:

Q = 10,000 + 60B -100P + 50C where Q = Annual number of cabinets sold B = Index of nonresidential construction P = Average price per cabinet charged by OE C = Average price per cabinet charged by OE's closest competitor It is expected that next year's nonresidential construction index will stand at 160, OE's average price will be $40, and the competitor's average price will be $35.

Forecast annual sales. Enter your response as a whole number without the dollar sign. What will be the new sales forecast if the competitor lowers its price to $32?

Managerial accounting:

Economists are often tasked with the duty of presenting financial data in a way that enables a firm's management to use it while making important decisions. This field of economics involves the application of numerous accounting functions, such as forecasting, cost analysis and budgeting.

Answer and Explanation:

A

Annual sales are forecasted as follows:

Q = 10,000 + (60 * 160) - (110 * 40) + (50 * 35)

= 10,000 + 9600 - 4400 + 1750

= 16,950

Forecasted sales for the coming year will be worth 16,950

B

Net effect if competitor lowers the price

Q = 10,000 + (60 * 160) - (110 * 40) + (50 * 32)

= 10,000 + 9600 - 4400 + 1600

= 16,800

The forecasted sales when competitor reduces price will be worth 16,800.


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Managerial Accounting Functions

from Business Management: Help & Review

Chapter 9 / Lesson 1
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