Management Accounting Decision and Control Sample assessment 1 task 1.7

Loopster

Hi,
I am a bit stuck on task 1.7 and would like a bit of help please?

A business with receivables of £120,000 and receivables collection days of 30, operates on a gross profit margin of 25% and a net profit margin of 15%. Fixed production overheads 40% of the total cost of sales.

c) Complete the profit and loss account below using the following performance indicators. Enter all figures as positive numbers - do not enter negative figures.

£
Sales
Variable Production Costs
Fixed Production Costs
Cost of Sales
Gross Profit
Non-Production costs
Net Profit



I don't really understand what to do without further information. Any help will be greatly appreciated.

N4T

SALES

Receivable collection days (30)= Receivables x 365 (£43,800,000) / Sales
therefore Sales = £1460,000

N4T

(100%) Sales
less VC
less FC
(25%) = GP (GP margin is 25%)

FC = £1460,000 x 40% = £584,000
GP= £1460,000 x 25% = £365,000
VC = £1460,000 - £365,000 - £584,000 = £511,000
COS = VC+FC = £511,000 + £584,000 = £1,095,000

N4T

(100%) Sales
less COS
= GP
less non-production costs
(15%) = NP (NP margin is 15%)

NP = £1460,000 x 15% = £219,000

Non-production costs = £365,000 - £219,000 = £146,000

I don't have access to the answers so hopefully they are correct.

Loopster

Hi N4T,

Thank you so much for the reply! Apologies, I should have included the answers.

The answers are:

Sales: £1,460,000

Variable Production Cost: £657,000

Fixed Production Cost: £438,000

Cost of Sales: £1,095,000

Gross Profit: £365,000

Non-Production Costs: £146,000

Net Profit: £219,000

You pretty much nailed it, thank you for the workings too, makes complete sense.

N4T

Oh I see where I went wrong. I was reading FC to be 40% of sales and not COS. I hope you can see how each part is worked out. Let me know if any part is unclear.

Loopster

Hi N4T. I can indeed, yes, perfect explanation. I was just banging my head against the wall, I was fine with the rest of the assessment.

Thanks so much! I'll be doing the other practice assessment later so will probably have a couple more queries I should have thought. Thanks again!