HELP with financial performance practice cba no 2

jojo1979

HI guys

wondering if someone could help me. I am currently going through the practice assessment for this on myaat and am stuck on on question 2.2 b. I cannot see how to caluclate the extra contribution and extra profit. Can someone please explain this to me :-(

Jo Clark

Hello jojo

You need to rework the contribution as the selling price has changed (reduced). The additional profit will be due to the increase in the sales from 100k to 125k units in the period.

All the information required is provided in the addtional data just before question 2.2 b.

Hope this helps.


JC

jojo1979

Hi Jo

I am really sorry but i just cant get the figures to match the actual answer. Im know i am going wrong somewhere but cant see where. I just cannot work this question out. Arghhh!!!!

Jox

Jo Clark

Hello Jo

Does this help?

The contribution per unit has changed due to the selling price changing. Remember Contribution is Selling Price less all Variable Costs. You are advised that the Selling Price has been reduced to £38 from £40 - £2 reduction. You are also told that the sales volume is expected to increase to 125,000 from 100,000 units per period.

To calculate the additional contribution:-

(125,000 x (24 - (40 - 38))) - (100,000 x 24) = 350,000


To calculate the additional profit:-

350,000 - 300,000 = 50,000

The 300,000 is for the marketing campaign.


I hope this helps.


JC

jojo1979

Hi Jo

I think i understand now

so you times the new sales volume by the the old contribution of 24 - the price reduction of 2) and then take that away from the old sales volume x the old contribution. Am i right there?

Thank you so much for your help, i have been trying ot get this for hours and just been drawing a blank each time.

Jox

salih

Can you help me with C on this exam paper?

Jo Clark

Can you post the question (in full) as I can't access the practice assessments.

salih

0) a Marketing campaign is to be undertaken which will cost £300,000.
0) Selling price will be reduced from 40 -38.
0) Current sales volume is 100,000 unit per period and this is expected to increase to 125,000 units as a result of the campaign and reduction in sales price.
0) All other fixed cost will remain unchanged.
0) Labour cost per unit is completely variable
0) Material cost per unit is completely variable
0) Assume inventory levels are kept at zero

Additional revenue will be £750,000.00
Additional contribution will be £350,000.00
Additional profit will be £50,000.00


c)
The marketing department is concered that the volume of sales may not reach 125,000 per period. The finance director has asked for the break even sales volume.

The fixed cost are £...........
The contribution per unit £........
The break even sales volume is ............ Units.

Nps

Jo won't be able to answer that as you've only posted half the question.

The theory is exactly the same as for the first part of the question but with the amended figures which you would have calculated earlier. If you're asking about part C, presumably you understand parts a and b where you will have calculated the figures you need, and therefore already know the formulas to calculate Part c. You need to be more specific about which bit you are stuck on.

salih

i know how to do part b is just part c im stuck on which is the full question

Nps

But you need the information given in part a to answer part c. Plus you need your answers from part a and part b in order to answer part c. If you have been able to work those out then part c is just a case of reworking the calculations with the new figures. If you've understood parts a and b, I can't see what bit of part c you are stuck on. Be specific about what exactly you don't understand and someone can help.

Perhaps write down what you think the calculations are and we can help to correct them if they are wrong.

salih

a) contrubition is £24
break even sales volume (whole unit) 72,917
Margin safety 27.08%

Nps

You've calculated the contribution on the original figures, not the new ones with the decreased selling price and the increased sales.

Edit - sorry, my mistake, those are the answers you have for part a - Yes they are correct. But I thought you were already happy with part a?

salih

i am happy with a . Just c im stuck on and i don't know why im getting different figure's not sure if im doing it right or not for c the answers are fixed cost £2,050,000, Contrubition per unit is £22 and break even sales volume is 9,3181.81
:001_smile:

Nps

Yes, they are the correct answers (are they what you've worked out, or have you taken them from the AAT answers?). I'm guessing you just want me to type out the calculations for you but I don't think that would help you in the long run. I'm not purposely being obstructive but the question is fairly straightforward and if you've done a and b, then you already know how to do part c even if you think you don't. Type out your calculations for the answers you are getting and we can show you where you are going wrong.

Jo Clark

Nps1976 wrote: »

I'm guessing you just want me to type out the calculations for you but I don't think that would help you in the long run.

I agree!

Type out your calculations for the answers you are getting and we can show you where you are going wrong.

I agree again... show us how you are calculating so we can help you where you are going wrong (if you are going wrong).

salih

So for part c the fixed cost in the question is shows fixed production cost is 1,200,000, fixed admin is 300,000 and fixed selling and distrubition is 250,000. When you added them up i get 1,750,000 but in the additional data is says marketing campiagn cost 300,000 im not sure if thats a fixed cost or not but when i add it up i get 2,050,000. Would that be right altough it gets to the answer? Just wanted to make sure if thats the correct way after looking at the book :0.

Nps

Will the marketing campaign costs change if the volume of production changes? If they will, then it is a variable cost however if they will remain unchanged (in other words, FIXED), then they are a fixed cost.

A big clue is that by adding it to the fixed costs, you get the right answer as you have noted.

salih

Only thing's that were change was the sales volume and the price reducing thats about it and this little information (All other fixed cost will remain unchanged). The next big issue it index numbers there's little information in the osborne book is there any source that could help me index numbers?

example Raw material TZ is imported and the historical cost per kilogram is show below:
Cost per kg, (June £9.90), (July £9.94), ( August £9.98)

a) Complete the table below by converting the cost per kg for each months to index numbers using January as the base month. The price per kg at January was £9.60 round your answer to the nearest two decimals.

Index (june)........... (july)............. (Auguest)..........



b) It is expected that the index numbers for TZ november will be 107.25, the expected cost per kg for november is.£.............


c) the percentage increase in the price of january to august was.£..........


Now in the osborne book the information for index numbers we are given this Historical price X Index of time converting to/ index of time converting from.

Historical price would that be 0.04 or 9.60

Nps

Right I'm confused now. I take it we've jumped from one question to another?? I thought you were in the middle of a contribution/break even question, or have you given up with it? I can't really keep up with what you need help with.

I really think you need to revisit your text books as you shouldn't be finding so many of the practice assessment questions this difficult. Even if you don't get the right answer, you should be able to figure out the workings afterwards by looking at the question and then the correct answer. With a basic understanding of the concept you should be able to work out how to get from one to the other.

Clintm15

salih wrote: »

Only thing's that were change was the sales volume and the price reducing thats about it and this little information (All other fixed cost will remain unchanged). The next big issue it index numbers there's little information in the osborne book is there any source that could help me index numbers?

example Raw material TZ is imported and the historical cost per kilogram is show below:
Cost per kg, (June £9.90), (July £9.94), ( August £9.98)

a) Complete the table below by converting the cost per kg for each months to index numbers using January as the base month. The price per kg at January was £9.60 round your answer to the nearest two decimals.

Index (june)........... (july)............. (Auguest)..........



b) It is expected that the index numbers for TZ november will be 107.25, the expected cost per kg for november is.£.............


c) the percentage increase in the price of january to august was.£..........


Now in the osborne book the information for index numbers we are given this Historical price X Index of time converting to/ index of time converting from.

Historical price would that be 0.04 or 9.60

Just follow the formula in the Osborne book. If the formula is:

Historical price X price converting to / price converting from

This translates to:

Historical price X index number.

So the index number = price converting to / price converting from.

For June this is:

9.90 / 9.60 = 1.03125
1.03 X 100 = 103.125

So the June index number using January as a base is 103.125.

Clintm15

salih wrote: »

I understand that question now. Sorry. That's another question from another practice paper

You have lost me now also.

salih

I see so for part b it would be reversed? if you're trying to get the expected cost per kg. That post replay was meant to be sent to someone else (I understand that question now. Sorry. That's another question from another practice paper)

Jo Clark

:huh:

salih

all i have for revision is the book and pratice paper i tired to contact my teacher but i got any responce from him. So when i see a question which is not often come up in the book. I tend to search online or go on the aat forum for some help.

Clintm15

salih wrote: »

I see so for part b it would be reversed? if you're trying to get the expected cost per kg. That post replay was meant to be sent to someone else (I understand that question now. Sorry. That's another question from another practice paper)

For part b you have been given the index number for November, which is 107.25. You have also been given the historical price for January (the base), which is £9.60.

All you have to do is multiply the January price by 107.25%, this will effectively increase the figure by 7.25%.

So £9.60 X 1.0725 = £10.30.

So the answer is £10.30.