Financial Performance Help

jane Registered Posts: 165 Dedicated contributor 🦉
Please could someone help me, I fear I am being really really dim and I need the help of fellow students.

BPP Question Bank

Practice Assessment 4

Task 2.4 B
ii - The operating profit margin for the industry is 25%. If it is not possible to change the selling price, demand or most costs, but it may be possible to reduce fixed admin costs, what would the % reduction in fixed admin cost have to be, in order to achieve a GP Margin of 25%?

The sales price is £8.00 per unit, and the anticipated demand of 500 000 units.
fixed sellind and admin costs are £85 000
Fixed addmin costs are £210 000

My problem is, when I look at the answer on pg 352, I can not figure out where £95 000 increase comes from? I get the £1 000 000 but dont/can't understand why they refer to £95 000.

Thanking you all in advance for your help


  • jane
    jane Registered Posts: 165 Dedicated contributor 🦉
    meant also to say that my exam is in a week and a half. This is a resit for me and the last one I have to do before I am AAT qualified. I am wanting this soooo bad, but am getting very nervous at the same time. I feel like I don't know anything - i think I have gone into panic mode, and keep telling myself off and to stop being so stupid.
  • Nps
    Nps Registered Posts: 782
    I must have a different version of the book to you, so can't find the question. Is that the full question you have shown above, or was there extra information in it? If you can copy the whole question and answer I'll see if I can help (or I'm sure someone else will).
  • dave8075
    dave8075 Registered Posts: 1 New contributor 🐸
    Ok, if the operating profit is to be 25% and the selling price cannot change then 25% of £4000 = £1000

    So if you have you operating profit as £1000 then that has increased the current profit by 95. In order for the profit to increase something has to give and that is the admin costs. So reduce them by 95 and they now total 115.

    Now you need to find what that reduction of admin fees represents as a percentage of the old admin cost 95 divided by 210 then x 100 = 45.24%

    Hope that helps!

  • jane
    jane Registered Posts: 165 Dedicated contributor 🦉
    :lol: Thank you very much for the reply. I had totally forgotten I had put this on here, I have been doing so many practice assessments!!!:ohmy:

    Now I can see where I was going wrong, I wasn't looking at the operating profit figure of £905!!! Oh boy I do hope I get this, Wednesday is getting closer too darn fast :tongue_smilie:
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