What are the Assumptions/Limitations used in making any calculations based on the following information:
The directors of Upholland Ltd are planning for the launch of a new electronic game and are considering selling this new game for a Selling price per unit of £99. It anticipates that the Variable cost per unit will be £66 and the Fixed costs attributable to this product are £495,000.
The information that the directors have does not take in to consideration the actual demand of the game in the market. It is not possible for a company to introduce as many of their products in the market and expect to find customers for all of them. If the sales volume has to be increased it would usually require a reduction in the price. Not all customers can afford a game worth 99, and the number of those that can is not unlimited. To attract those that cannot afford 99, the company has to decrease the price of the game, else the customers do not buy the game or buy less expensive games created by competitors. The directors have assumed that the price elasticity of demand or the value for the percentage change in the demand of the game for a change in the price of the game is equal to 0.