# HELP CBT 4 FNPF 2.3 (d)

WAD2001
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Hi

Ive totally lost the plot :huh: with this question and am going around in circles could anyone help with a breakdown of how to get 26% for the answer. Thanks x

Ive totally lost the plot :huh: with this question and am going around in circles could anyone help with a breakdown of how to get 26% for the answer. Thanks x

## Comments

2,034Registered, ModeratorSales needed =

Fixed Cost + sales needed x £15sales needed = contribution per unit

Contribution per unit x Sales needed = Fixed Cost + sales needed x £15

Contribution per unit x Sales needed - sales needed x £15 = Fixed cost

(Contribution per unit - £15) x Sales needed = Fixed cost

Sales needed =

Fixed costsales needed = Contribution per unit - £15

This will give you the sales needed

Sales needed - Break even salesx 100% = margin of safety %sales needed = Sales needed

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21Registered214RegisteredI'm stuck on this question myself. In your explanation you say sales needed=fixed cost + sales needed... if this is the figure we are looking for, how do we know what to input there?

2,034Registered, Moderator[email protected]

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2,034Registered, ModeratorFixed overheads in the target costing question (part c) is £270,000

The extra information then tells you that the fixed overheads are £200,000

So think for a minute... if the fixed overheads cost £270,000 the product will generate 30% profit. Absolutely, because you did the sums for (a) (b) and (c) on this basis.

Now, everything else remains the same..........except that the fixed overheads have just dropped by £70,000

And what happens when the fixed cost falls but price, variable cost per unit, and volume remain the same - yes the profit increases (by £70,000)

And what is margin of safety in revenue? The revenue over the revenue needed to achieve the 30% margin.

This means that £70,000 extra profit divided by the £270,000 is the percentage by which revenue can fall to bring the profit that the scenario with the £200,000 fixed costs before it is in line with the £270,000 fixed cost needed to achieve the 30% profit margin.

So:

£70,000= 26%.....£270,000

An interesting way and not a bit of (obvious) algebra in site!

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www.sandyhood.com