An entity has a market-based pricing structure that is based on the quantity demanded. The entity’s policy is to always

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An entity has a market-based pricing structure that is based onthe quantity demanded. The entity’s policy is to always keep totalcost of the product at 80% of market price. The entity uses thetraditional costing system to establish cost. The budgetedoverheads for the period were estimated at $1,000,000. Meanwhile,the budgeted activity level is expected to be 50,000 direct labourhours. Information relating to the total cost of the product atdifferent demand levels are shown below: Demand in quantity(units)1,000 1,200 Direct material $ 50,000 $ 60,000 Direct labour ($25per hour) $160,000 $200,000 Direct expense $ 90,000 $120,000 Fixedselling expense $600,000 $600,000 Required: (a) Determine thestraight-line demand/price equation based on the selling prices andquantity demanded. (15 marks) (b) Using the equation to predictquantity demanded when selling price is $923.50. (2 marks) (c)Explain briefly the concept of price elasticity of demand anddiscuss briefly how it impacts pricing decisions. (3 marks