Financial Performance - AAT Level4 Pratice Assessment 2 - Question 2.3 (d)

ninjaninja Registered Posts: 5
Can please someone help with the belwo question:

Beta Limited is considering designing a new product, the JF007, and will use target costing to arrive at the traget cost of the product. You have been given the following information:
  • The price at which the product will be sold £70
  • The company expect to sell 30,000 units at a price of £70
  • The fixed production cost is £360,000
  • The labour requirement is 1.5 hours at a cost of £18 per hour
  • The required profit margin is 30%

(d) The required volume of sales (assuming that the target variable cost per unit is met) to achieve a total profit of £800,000 is ____________units.
The answer is 35152 units.

Please help me with the above question. My exam will be tomorrow.

Many thanks in advance.

Comments

  • CeeJaySixCeeJaySix Well-Known Registered Posts: 645
    Long time since I did costings, but I feel like there's some information missing.

    IIRC its simply a matter of working out how many units you need for the contribution per unit to match the required profit plus fixed costs. Contribution being selling price less variable costs. As the only variable cost given is the labour rate, we cannot work out the contribution per unit. Was there something you had to calculate in an earlier part of the question that's relevant (eg. the contribution per unit, or the materials cost per unit)?

    Someone please tell me if I'm way off base here.
  • ninjaninja Registered Posts: 5
    Hi, many thanks for helping me .
    Yes , (a) the target total production cost per units is £ 49

    (b) The target variable material cost per unit is £ 10

    (c) The contribution per unit is £33

    Yes I have tried ,,,, Fixed cost/ contribution per unit = 360,000/33 and Fixed cost / materail per unit= 360,000/10 but the answer still not right

    The answer is 35152

    Many thanks for your kindness.
  • ariadneariadne Registered Posts: 218
    It's 360,000 (fixed costs) plus 800,000 (target profit) divided by 33 (contribution).

    1160000/33

    The answer is 35151.5 so rounds up to the given answer.

    Remember to add on the target profit to the fixed costs. If you have the L3 costs and revenues book it will explain this in more detail with more simple examples. There should be a green light or elearning exercise on MyAAT too.

    Good luck tomorrow.

  • ninjaninja Registered Posts: 5
    Thank you sooooo much, God bless you.
  • ninjaninja Registered Posts: 5
    Hi, I passed the Financial Performance (AAT Level 4) , completed AAT. Many thanks for helping while I was struggling with the FNP. Thanks!!
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