Home For AAT student members AQ 2013 AAT Level 4 (Level 8 in Scotland)

Target Costing

SusieQtipsSusieQtips Feels At HomeRegistered Posts: 65
Hi

Can anyone help me with this question from the Financial Performance CBA?

Company expects to sell 30,000 units @ £70 each
Fixed production costs are £360,000
Labour is 1.5hrs @ £18 per hour
Profit Margin 30%

I've got the target production cost as £49 (£70-£21)
Target variable material cost as £10 (49-27 labour -12 fixed costs)
Contribution per unit as £33 (70-27 labour -10 material)

I am totally clueless as to how to get 'the required volume of sales (assuming the target variable cost per unit is met) to achieve a total profit of £800,000'

The answer is given as 35152.

Can anyone tell me how this figure is reached, please?

Thanks

Comments

  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    This is a development of break even analysis.

    You should know that:

    required profit + total fixed costs = sales volume required for required profit
    .......contribution per unit

    So use the figures you have produced

    £800,000 + £360,000 = 35151.5 which rounds to 35152
    ...........(£70-£37)
    Sandy
    [email protected]
    www.sandyhood.com
  • SusieQtipsSusieQtips Feels At Home Registered Posts: 65
    Of course!! I recognise that formula, we learnt it in level 3. Thank you so much Sandy, I've been struggling with this for days and I couldn't find anythng in the target costing section of my text book. I feel really embarrased now that I had forgotten something so simple.
  • salihsalih Feels At Home Registered Posts: 81
    Can someone help me same pratice paper cba but the section before 2.2 the addintional data part how do you get the answers? im lost on that part rest are fine is just that part can someone please help me
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