Financial Performance - CBT sample assessment 2

Chrissi
Chrissi Just JoinedRegistered Posts: 2
Hi,

can anyone please help me with question 1.8 on this assessment.

I am stuck on the following:

Option 1:
Sales Price: £70
Volume: 10,000
variable material: £20
variable labour: £10
fixed overhead: £24

Option 2:
Sales Price: £90
Volume: 6,000
variable material: £20
variable labour: £10
fixed overhead: £40

1) What profit can be achieved if the price is set at £70. The demand is 10,000 units but only 8,000 units can be produced.
2) An overseas supplier has offered to produce 4,000 at £45.
What profit can be achieved if price is set at £70. The demand is 10,000 units. 6,000 units willl be produced and 4,000 units will be bought.

Thank you very much for your help. It is driving me insane as my exam is on Thurday and I just can't get the right answer (80000 and 100000).

Chrissi

Comments

  • Nps
    Nps Experienced Mentor Registered Posts: 782
    Have only looked at part 1 so far, but remember that the fixed costs per unit are based on 10,000 units being budgeted for, so work out the total fixed costs on that basis. Then calculate the contribution per unit, multiply that by the number of units actually produced/sold, then subtract the fixed costs as calculated above. This will give you your £80,000 profit.
  • Nps
    Nps Experienced Mentor Registered Posts: 782
    Part 2 is very similar - the same fixed costs (remember calculated on the basis of 10,000 units being produced). Multiply the contribution of the units bought in, add that to the contribution of those produced in house, and subtract your £240,000 of fixed costs again, to get the profit of £100,000.
  • Chrissi
    Chrissi Just Joined Registered Posts: 2
    Hi Nps,

    Thank you so much. It took me a while to get my head around it but I got it now. Thanks a lot.

    Regards
    Chrissi
  • hmarsh2
    hmarsh2 Registered Posts: 5
    Hi I too am struggling to understand question1. The total fixed cost would be £153,600 (24/10000*8000=19.20*8000) Contribution per unit is £70-30=£40. Nps is saying multiply this by the number of units so £40*8000=320000-153600=£166,400. Could you please explain further how the £80000 is calculated.
  • SandyHood
    SandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    The total fixed cost is £240,000

    You can find this from either option
    1. 10,000 x £24/unit
    or
    2. 6,000 x £40/unit

    At a contribution of £40 per unit if you sell 8,000 your total contribution is £320,000
    Less £240,000 fixed cost
    Leaves £80,000 profit

    [email protected]
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHood
    SandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    SandyHood said:

    The total fixed cost is £240,000



    You can find this from either option

    1. 10,000 x £24/unit

    or

    2. 6,000 x £40/unit



    At a contribution of £40 per unit if you sell 8,000 your total contribution is £320,000

    Less £240,000 fixed cost

    Leaves £80,000 profit



    [email protected]

    Sandy
    [email protected]
    www.sandyhood.com
  • hmarsh2
    hmarsh2 Registered Posts: 5
    Thank you very much Sally. That now makes perfect sense :)
  • alfredsoo1
    alfredsoo1 Registered Posts: 1
    Im stuck on the [url=http://www.esixsigma.org]lean six sigma[/url] exact same question, and my brain has also stopped working :(
  • leption
    leption Registered Posts: 36
    I did my FP exam today and I'm sure I've failed it. The written parts seemed easier than the calculations. I've practiced so much and understood the subject (or thought i did).
  • kgomotso_mosweu
    kgomotso_mosweu Registered Posts: 3
    m writing mi FP exam in two weeks i really do not know where to start please help with any strategy on how to study FP m not looking forward on failing this module......
  • kgomotso_mosweu
    kgomotso_mosweu Registered Posts: 3
    m writing mi FP exam in two weeks i really do not know where to start please help with any strategy on how to study FP m not looking forward on failing this module......
  • hmarsh2
    hmarsh2 Registered Posts: 5
    I did my FP exam on Wednesday which went quite well. Keep practising the aat sample assessments and the green light area and eventually you will start to remember how to do the calculations. Practice practice practice
  • kgomotso_mosweu
    kgomotso_mosweu Registered Posts: 3
    Thank you ....but the report writing part is giving me a headache are the questions on the practice assesment the same as for exam(report writing)?
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