Also stuck on cba 2 fnpf

WAD2001

Question 2.2 (b)

Production Capacity 140,000
Units produced and Sold 100,000

Revenue 4,000,000
costs
Direct Material 1,000,000
Direct Labour 600,000
Fixed Production Costs 1,200,000
Gross Profit 1,200,000
fixed Admin 300,000
Fixed Sell & distribution 250,000
Profit 650,000

contribution per unit £24
Break even in units 72917
Margin of safety 27.08%

Additional Info
A marketing campaign will cost £300,000
selling price will change from £40 to £38 per unit
Volume will increase from 100,000 to 125,000 as a result of marketing campaign and reduced selling price
all other fixed costs will be same
Labour costs are variable
material cost per unit is variable
Assume inventory is kept at zero

QUESTION HELP!!!!!!

The additional contribution will be ??????????
answer £350,000

I keep doing it and keep geting £450,000 what am i doing wrong arrrrrrrrrr!!!!!!!!!!!!

Dahir Ahmed

Hi Wad2001
Unit contribution based on the changes is £22 (£38-£10-£6 as Labour and Material costs per unit are completely variable).

Revised total contribution based on the changes will therefore be;
£22*125,000 units = £2,750,000

Original total contribution was £24*100,000 = £2,400,000.

Difference is therefore £350,000.

WAD2001

Thanks

:001_smile:

Dahir Ahmed wrote: »

Hi Wad2001
Unit contribution based on the changes is £22 (£38-£10-£6 as Labour and Material costs per unit are completely variable).

Revised total contribution based on the changes will therefore be;
£22*125,000 units = £2,750,000

Original total contribution was £24*100,000 = £2,400,000.

Difference is therefore £350,000.