Management Accounting Decision and Control Sample assessment 1 task 1.7

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.

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
    N4T AAT Student Posts: 191

    Receivable collection days (30)= Receivables x 365 (£43,800,000) / Sales
    therefore Sales = £1460,000
  • N4T
    N4T AAT Student Posts: 191
    (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
    N4T AAT Student Posts: 191
    (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
    Loopster Registered Posts: 24
    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
    N4T AAT Student Posts: 191
    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
    Loopster Registered Posts: 24
    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!
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