Unit 33 Mac Past papers!

Lyn32

Hi everyone!

I am hoping that someone can help me with this please, past exam papers on June09 task2.2(b) redraft the profit and loss account.I don't understand on the calculation on the fixed advertising cost, it shows in the answersheet 1000 in the adjustment columm. I don't understand on how did they get this 1000 came from? In the additional information says that only material and labour costs increase, other fixed cost is nil why fixed advertising cost is 1000, I try all possible calculation but I missing something significant here!

Please share any idea will much be appreciated!
Many thanks in advance......

sdv

Lyn32 wrote: »

...I don't understand on the calculation on the fixed advertising cost, it shows in the answersheet 1000 in the adjustment columm. I don't understand on how did they get this 1000 came from?

first of all £1000 is actually £1 million


In the additional information there is the following information:

• The cost of sponsorship will be £1 million and it is felt that the effect will be to increase the volume of sales by 5,000 units per month.

You are asked to re-draft profit and loss a/c to take the above review into account. There-fore the sales will increase by 5000 unit to 50,000 units

All the variable costs will incease (material & Labour) by the cost of 5000 units and PRODUCTION fixed costs will remain the same.

BUT sposorship costs (ADVERTISING) costs will increase by £1 million. (£1000)

Lyn32 wrote: »

In the additional information says that only material and labour costs increase, other fixed cost is nil why fixed advertising cost is 1000

ADVERTISING is not part of fixed production costs. they are selling and distribution costs.

In any case the additional information says that the £1million sponsorship costs will result in increased sales of 5000 unit, and only labour and material costs will increase. By implication only the marginal (variable) costs will increase. OR All the FIXED COSTS will have been absorbed by 45000 units. BUT the sposorship costs (ADVERTISIG) will go up by £1 million

I hope this hels in your understanding/analysis

Lyn32

Thank you sdv,

With all your expalanation it make sense I appreciate your time.