Economics, Accounting & Business: Post your doubts here!

[Qasim Raza]

question 8, how to do it? :S and in the same paper question 9 :S

 

[Sovit]

Hey guys
Buzz xm went well but i think i got the answer of contribution wrong Could u plz xplain the process

 

[memyself]

This is possible as MV=PT the quantity theory of money, if volume goes up this means that people are demanding more leading to an increase in transaction. An increase in transaction means people want to spend more rather than save this will lead the bank to raise the interest or can be explained by the liquidity preference curve that people are more willing to hold financial asset than save this will cause a contraction of the curve thus interest rate increase.

Thankyou, but wouldn't they be holding more liquid assets to spend rather than hold less (refering to the preference curve)?

 

[Saiyan]

question 8, how to do it? :S and in the same paper question 9 :S

You have to remember that points above the middle point of the demand curve are always price elastic which means PED>1 the only option >1 is option D.

Just remember in a contestable market barriers to entry and exit are low in a contestable market.

 

[Sovit]

question 8, how to do it? :S and in the same paper question 9 :S

There is a simple solution PED is equal to lower part /upper part of curve seperated by the point.

 

[Saiyan]

Thankyou, but wouldn't they be holding more liquid assets to spend rather than hold less (refering to the preference curve)?

No that is the result of the decrease in saving. You see when people save more interest rate falls but a higher interest rate is charged for making the people save. The opposite happens when people save less and banks do not possess the sufficient fund for loans as a result the interest rate rises to attract the savings,

 

[Qasim Raza]

look if the PED is 0, increase in the price of the product by 5% will result into how much increase in the revenue of the product?

 

[Saiyan]

look if the PED is 0, increase in the price of the product by 5% will result into how much increase in the revenue of the product?

Now you are just asking O level questions. If PED is 0 this means that a change of price has not effect on a change in demand therefore revenue also increase by 5%.

 

[youzair]

I said skool shud not b closed cux o positive contrib

me too

 

[memyself]

look if the PED is 0, increase in the price of the product by 5% will result into how much increase in the revenue of the product?

can't u just remember that the upper half of a downward sloping demand curve is elastic (greater than 1), the lower inelastic (less than 1)!

 

[Qasim Raza]

trading of quotas means?

 

[youzair]

bt the contribution is too low...can't even cover the partial fix cost. and though it has a positive cont. it couldnt make profit for the past 6 years...which means the fix cost had to be covered by the overall profit. bt in business u just need to give specific reasoning to ur point. analyse it well ...u might get it well

i wrote that contribution is +ve the AHS shouldnt be closed coz the problem of not covering its f.c is improper managemnt strategies

 

[youzair]

Hey guys
Buzz xm went well but i think i got the answer of contribution wrong Could u plz xplain the process

Examiner confused candidates with the statement.
Basically contribution is very important method, specially in recession to decide b/w producing or seizing the operations so if the contribution is positive there are more chances of business to be successful in coming years by reducing cost and all..
So the formula for Contribution is =
Price(Selling Price) - Variable Cost

Contribution can be per unit or total, we can calculate in either way in today exam!

The Fee they were charging was $2900 per student so it will become the PRICE.
The direct costs(variable costs) were given...i forgot the v.c

The price was given in PER UNIT and DIRECT COST was total!

so to give the ANNUAL Contribution multiply Price(Fee) x Quantity(No. of Students)= Sales Revenue
$2900*360=$1.044m
now subtract S/R from total Direct Costs it will give u total contribution!

 

[Anusuya]

i wrote that contribution is +ve the AHS shouldnt be closed coz the problem of not covering its f.c is improper managemnt strategies

ya i knew this fact...at first i thought abt writing the very thing...bt as i started writing i realised the contributions were too low and fix cost too high. even to come to break even was a long way. GCC needed an immediate profit...the AHS had been going through loss for the past 6 years...and all these years fix cost had to be covered by the overall profit...and continuing it just because of a +ve cont. might lead to future losses. Bt thats just wat i thought. You can argue on whichever side u chose

 

[youzair]

ya i knew this fact...at first i thought abt writing the very thing...bt as i started writing i realised the contributions were too low and fix cost too high. even to come to break even was a long way. GCC needed an immediate profit...the AHS had been going through loss for the past 6 years...and all these years fix cost had to be covered by the overall profit...and continuing it just because of a +ve cont. might lead to future losses. Bt thats just wat i thought. You can argue on whichever side u chose

The manager suggested that basically reason behind the education sector failure in GCC is varying strategies in different school of GCC!
i know contribution was very low but still its better in RECESSION not to close the operations that contribute positively because indirect costs, then, have to be allocated between the running operation as they will not eliminated as direct costs!

 

[Anusuya]

The manager suggested that basically reason behind the education sector failure in GCC is varying strategies in different school of GCC!
i know contribution was very low but still its better in RECESSION not to close the operations that contribute positively because indirect costs, then, have to be allocated between the running operation as they will not eliminated as direct costs!

yess bt again the closing of AHS lead to financing of another school in Country A or B. So i thought the fix cost could be reallocated there...and if a correct location is chosen...more profit can be obtained. Idk I might be wrong too...

 

[Anusuya]

The manager suggested that basically reason behind the education sector failure in GCC is varying strategies in different school of GCC!
i know contribution was very low but still its better in RECESSION not to close the operations that contribute positively because indirect costs, then, have to be allocated between the running operation as they will not eliminated as direct costs!

and morever it could not even cover its own cost...the overheads of i guess 320 000

 

[youzair]

yess bt again the closing of AHS lead to financing of another school in Country A or B. So i thought the fix cost could be reallocated there...and if a correct location is chosen...more profit can be obtained. Idk I might be wrong too...

GCC was pressurized by sharehloders to increase return so they should not open a new factory which will need $25m invstment!
wich wil further worse the investor ratios!
i was not in favour to open up a new factory which is strategic move but managers at AGM already agreed to increase return in coming year so GCC doesnt need to plan further ivestment rather improve intrnal consequences i.e communication...to achive the likely result

 

[youzair]

and morever it could not even cover its own cost...the overheads of i guess 320 000

Yeah i know then what is the use of being CONGLOMERATE diversfied firm??
the main reason of diversification is to spread the risk!
dont only look at AHS cost but cost of not increasing return to sharhldrs...they may increase the supply of share, cause market walu of GCC to go down and it will be open for take over coz the Hussen brothers now dont hold the 50% shares themselves

 

[Anusuya]

Yeah i know then what is the use of being CONGLOMERATE diversfied firm??
the main reason of diversification is to spread the risk!
dont only look at AHS cost but cost of not increasing return to sharhldrs...they may increase the supply of share, cause market walu of GCC to go down and it will be open for take over coz the Hussen brothers now dont hold the 50% shares themselves

may be u r correct...bt business you don't have a definite ans. Bt i dnt think my analysis is wrong either though not upto the mark. I supported the idea of increasing dividend by closing the loss making dpt. and using it as dividend payout. 3-4years mai toh long term investment ka asar bhi hoga....aur profit badh jaega. hahha...i dnt know wether my ans makes sense or nt