Cost and Revenues Task 6 Activity effect

moneeb12

Can someone be kind enough to thoroughly explain task 6 of assessment paper 2 on the AAT Website.
Much appreciate would be tremendous!

JoshJ1992

Hi moneeb12

Certainly - no problem. What you are essentially trying to do is work out the cost at different levels of activity. So, taking each section one at a time:

Sales revenue per mile if the contract is 14,000 miles

• Take the sales revenue of 182,000 and divide it by 14,000 to get the sales revenue per mile of 13.
  

Variable cost per mile if the contract is for 18,200 miles

• First add the variable costs together (16,800 + 11,2000 + 15,400).
  
• Next divide them by 14,000 (as the figures are based on an activity level of 14,000 miles) to get 3.10
  
• You can check this by multiplying by 18,000 and the dividing by 18,000.
  

Fixed cost per mile if the contact is for 15,600 miles

• Remember fixed costs are fixed
  
• Firstly add the fixed costs together (19,600 + 35,000)
  
• Then divide by 15,600
  

Total cost per mile if the contact is for 15,600 miles

• You will need to work out what the total cost is if the level of activity is 15,600. Task each part of the variable cost, divide by 14,000 and multiply by 15,600 (e.g. for Diesel fuel, you divide 16,800 by 14,000 and multiply by 15,600).
  
• Fixed costs are fixed do don't do anything with them.
  
• Add the costs together and then divide by 15,600 to get 6.60.
  

Finally Profit per mile if the contact is for 18,200 miles

• Same method as above but for 18,200 miles.
  
• Once you have workout out your total sales revenue and total costs, you can work out your profit (sales revenue minus total costs) and then divide by 18,200 to get 6.90
  

Hope that helps.

Slackpants

Hi JoshJ1992

Please can you explain the profit per mile (for18,200 miles) in greater detail or show me the breakdown line by line, as I cannot seem to work this last one out and it's driving me mad!

Thanks

Jonathan_Walker

Hi so you do 182,000/ 14000 x 18200 = 236,600 sales revenue for 18200 miles -
Variable costs = 21,840 + 14560 + 20020 = 56420 worked out in part 2 -
Fixed Costs 54,600 = 125580 Profit / 18200 = 6.9 profit per mile