Financial Performance Task 9 of CBT sample 1 Target profit margin

Ly21

Does anyone know how to do the part b? what calculations do I need to do to know what price to set, in order to achieve the target profit margin?? It's confusing.

Thank you :001_smile:

SandyHood

I imagine you know that the £40 price alternative has a production overhead target cost of £8,000,000
And that the £50 price alternative has a production overhead target cost of £9,460,000

Do you appreciate what these values mean?

If we can get the production overhead cost down to £9,460,000 then the £50 price alternative will make the required 30% profit (and the £40 alternative will not)
For the £40 price alternative to generate the 30% required profit, fixed production overheads must be down to £8,000,000

The answer must be £50

So no calculations needed, just understanding about the meaning of the answer to part (a)

Just think about those businesses that locate on low rent sites. The lower the cost the more attractive the location.

sandy@sandyhood.com

MmeFroggy

Hi Sandy, would you please be able to explain answers pf part a too as I cannot get my head round it thank you

SandyHood

Mme Froggy
I have use a tabular layout
To help this stay in the columns I used, I have put it into a word document which I haven't been able to attach.
Sorry, I don't seem able to use the "attach file" facility
I have it in a word doc format. If you'd like it please email me.
I hope it helps
This is a fundamental aspect of target costing, so I recommend that you ask your lecturer or distance learning provider for more questions for you to practice on.
Yours

Sandy
sandy@sandyhood.com

MmeFroggy

Thank you Sandy. I have sent you an email

bryn

Hello Sandy , I would be grateful if you could send the workings to part A to me too.

SandyHood

Dear Bryn

I don't look on this forum very often. And I don't have your email.
I will reply with the word doc if you email me.
Yours
Sandy

sandy@sandyhood.com