Ecr - Urgent Help Please! :-)

phunkyphantom22 Registered Posts: 166 Dedicated contributor 🦉
Hi! Can someone please help me with these questions? I am doing a practice skills tests for unit 6 ECR and getting a bit stuck. I really need help tonight - much appreciated! Thanks!

1. Verbal presentation of information refers exclusively to face to face conversation, true or false?

2. Profit volume ratio is 40%. Unit selling price £25. Breakeven revenue for year is £89,000. What are the fixed costs?

3. Why might an organisation wish to hold stocks of finished goods rather than manufacturing to order?

4. What costs elements are typically included in cost of an item of work in progress?


  • crispy
    crispy Registered Posts: 466 Dedicated contributor 🦉
    2. Fixed costs = £ 89,000 x 40% = £ 35,600

    To prove out: Selling Price 25
    Variable Cost (15)
    Contribution 10 (10 / 25 = 40 % PV Ratio)

    £ 35,600 / £ 10 = 3,560 units at breakeven - 3,560 x £ 25 = £ 89,000

    3. To cope with any fluctuations or seasonal demand. Lack of availability of raw materials, or as a direct investment policy.

    4. Raw Materials, Direct Labour, Production Overheads
  • Pencil
    Pencil Registered Posts: 97 Regular contributor ⭐
    Hi Phunky

    This looks like the actual skills test I did earlier this year.

    The verbal presentation caused a bit of stir in our class and we were split 50/50 on it. It is actually false as technology allows you to do presentations via telephone conference and also through web cams, so the answer is actually false.

    I'm having a bit of trouble remembering the next one but it's something like... Profit ratio being 40%, this is 40% of the selling price (40% of £25 = £10). Fixed costs per unit = £15. Breakeven revenue = £89,000. Divide £89,000 by the unit price (£25) to get the number of units required (3,560) then multiply this by the £15 fixed costs = £53,400. (I think this is right)

    Organisations have work in progress because it's more cost effective for them, the staff are kept busy making units constantly, rather than being paid to sit around waiting for orders to come in. There's no need to order materials in as and when, ensuring better deals on stock. Customers are able to recieve their orders quicker and maintain good customer relations at the same time as getting money in.

    Costs elements incurred will include labour and materials and possibly abnormal loss costs.

    Hope this helps and that I haven't told you any bum info. I'm sure someone will put me right if I have!

    Good Luck:thumbup:
  • phunkyphantom22
    phunkyphantom22 Registered Posts: 166 Dedicated contributor 🦉
    Thanks guys - I'm still a bit stuck on calculating fixed costs, which one is right?!

    Pencil - did you also have a question where you journalled the under/over absorption? I can do that part but it's asking me to identify any discrepancies and write an e-mail about them, any ideas?!
  • Pencil
    Pencil Registered Posts: 97 Regular contributor ⭐
    Sorry that this reply may be a bit late for you now, I do vaguely remember the journal, but unfortunately not in enough detail to give you a reasonable answer. I hope you managed to get something together in the end. Please let me know how you get on
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