Cost and Revenues Task 6 Activity effect
moneeb12
Registered Posts: 2
Can someone be kind enough to thoroughly explain task 6 of assessment paper 2 on the AAT Website.
Much appreciate would be tremendous!
Much appreciate would be tremendous!
1
Comments

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.
 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.
 Remember fixed costs are fixed
 Firstly add the fixed costs together (19,600 + 35,000)
 Then divide by 15,600
 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.
 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
0  Take the sales revenue of 182,000 and divide it by 14,000 to get the sales revenue per mile of 13.

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!
Thanks0 
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
0
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