Cost and Revenues - Contribution

MunaBx

Right, I'm starting to feel a little overwhelmed. Seems like certain things I wasn't taught are going to be in the exam. Think I need to hire someone to put in my pocket for whenever I'm stuck :001_unsure:

Level 3 Practice Assessment 4 Question 2.2 Contribution/Contribution per mile

Any help would be much appreciated

Nps

To be fair, I think that's a bit of a rubbish question. The table makes you calculate the answer one way whereas I would calculate it another. Forcing you to follow their workings makes it difficult if that's not the way you find natural (I've come across a few questions like this where I just wish they'd ask for the answer and let you work it out however way you want to). It's not a difficult question per se, it's just the way they ask for the information.

Anyway, which of the blanks do you need help with? Fill in as many as you can first and let us know which ones you need help with.

Nps

For the top half, just transfer the information from the question (but remember they have classed some of the drivers wages as a fixed cost). Show the variable costs (remembering to take out the fixed bit of the drivers wages) and hen calculate the contribution using the figures in the above 2 lines.

To get the contribution per mile you need to calculate how many miles they drove. You can do this by knowing that the £20,000 variable bit of the drivers wages was made up of 50p miles, so you can calculate how many miles were driven in total. You then use this contribution per mile with the 'fixed cost + target cost' figure to get the number of miles required to reach the profit.

I can explain more if you need.

MunaBx

Sorry, can you explain more please. I'm trying to do it but have gotten confused

Nps

Sorry, I wrote the last post in a rush so probably not the best explanation!

Do the bits you can and let us know which boxes you can't fill in.

MunaBx

I'm just unable to fill in the contribution/contribution per mile fields.

Nps

The contribution is just revenue minus variable costs as normal (I'm pretty sure you knew that and it's just the format of the question which is making you doubt yourself). So 220000-80000 = 140000

You are told that £20,000 of the drivers costs are variable and are calculated at 50p per mile. 20000/0.50 = 40000 miles must have been driven.

So your contribution per mile is 140000/40000 = 3.5

MunaBx

If youre not already, you need to become a tutor!! Thank you