Really sorry, one last question! CBA exam number 2 question 2.2 part b)

amyjayne27

Hi all,

Sorry to post again but just stuck on something and exam is in 3 days!

On CBA practice exam number 2 question 2.2 part b) I cannot for the life of me come to the right answers!

The additional revenue - I get £950000 (£38 x 25000) but the answer is £750000?
Then the contribution I get £550000 (material and labour cost/100000 x 250000 which equals £400000 then sales as above less £400000 = £550000 but the answer is £350000. I know that bit is because I am calculating the revenue wrong but just cannot get my head around it!

Then with part c) I can calculate the fixed costs fine but cannot work out the rest!

Also on the same practice paper but number 2.4. I can calculate everything but part d) I cannot work out at all!

Any help would be greatly appreciated and sorry again for all the posts, its just the above bits were the only parts I cannot do!

Thanks

Nps

Hi,

For the additional revenue you need to know the old price (4,000,000/100,000= £40 each) so you can work out that the new price is £38 (£2 less). 38 x 125,000 = 4,750,000, so you have £750,000 extra revenue (4,750,000 – 4,000,000)

The old contribution was £24 (from part a) so a total of 24 x 100,000 = 2,400,000

The new contribution is 4,750,000 minus the new costs.
Materials = 1,000,000/100,000 x 125,000 = 1,250,000 and
Labour = 600,000/100,000 x 125,000 = 750,000
so 4,750,000 – 1,250,000 – 750,000 = 2,750,000 total contribution. This is £350,000 more than the original 2,400,000 contribution.
From this extra contribution, you now have an extra £300,000 of fixed costs to cover (the marketing costs) so leaving £50,000 worth of contribution which is extra profit.

In part c, your fixed costs are those shown in the table (1,200,000, 300,000 and 250,000) plus the new 300,000 marketing costs so a total of 2,050,000.

Your contribution per unit is now £22 each (total contribution calculated above (2,050,000) divided by 125,000 = £22)

So your final break even number is 2,050,000/22 = 93,182

Nps

Unfortunately I can't see a part d on question 2.4 so afraid I can't help with that one!

amyjayne27

Hi NPS

Thank you so much that makes sense now!

Sorry I meant part d) on task 2.3. not 2.4 sorry

But thanks for explaining the above I have gone through the question again with your answer and it makes much more sense.

Thank you for your help!

Nps

Ah yes, 2.3 has a d!

You know your fixed costs are 360,000 and that you need to cover these to break even. But you are also told that you must make a profit of 800,000 so now you know that you need to make at least 1,160,000 in contribution in order to cover the fixed costs and make the required profits. Each unit provides a contribution of £33, so 1160000/33 = 35151.5151515, in other words, you need to sell 35,152 in order to cover the fixed costs and make the profit needed.

amyjayne27

Hi NPS

Thanks ever so much for explaining that to me, I have printed off your answer and will use it for reference for my exam :-)

Think I am just about getting there now, just need to brush up on the written parts.

Thanks again

Mollypod88

Thanks for asking this question.

I was having difficulty as well :001_smile:

amyjayne27

No probs Molly :001_smile:

How are you getting on with FNPF?

Mollypod88

Better now I've found this post!

Just need to go over indexing again. The question in mock 2 gets me and I can't remember what to do :confused1:

How are you getting on?

amyjayne27

Not too bad thanks, indexing isnt my strong point either!

I am a bit worried about the written parts so going over them tommorow.

When is your exam?

Mollypod88

Yeah I'm going over Indexing today. I'm not too phased by the written parts but never have been.

My exam is 1 week on Saturday.

Good luck for tomorrow ... let us know how it goes!

Nps

The thing with indexing is, you will always have a rough idea of whether the answer will be higher or lower than the figures given, so even if you don't know which way the formula goes, you can play around with it till you get an answer you expect.