Financial Performance - Sample assessment 1 - task 7-a

You have been provided with the following information involving a company which operates an absorption costing system.

Scenario 1
Sales volume (units) - 120000
Revenue - 1680000
Gross profit - 600000
profit from operations - 275000
net assets - 2298400
inventory - 147950

Calculate the following performance indicators

Return on net assets - 11.96
Inventory holding period in days - 50
Sales price per unit - 14
Full production cost per unit - ?????

Can somebody pls help in finding out the full production cost per unit?

It should be direct material + direct labour + direct overheads
So I have calculated:
(revenue - profit from operations)/sales volume
(1680000 - 275000)/120000 = 11.71

However the correct answer is 9

Please help!

Best Answers

  • tinkerbell0406tinkerbell0406 Posts: 21Registered
    Accepted Answer
    Ok, take you gross profit from your sales revenue and divide sales volume and it 9. Gross profit less revenue gives you cost of sales. Hope this helps
    Reme
  • RemeReme Posts: 16Registered
    Accepted Answer
    Oh gosh, sometimes we make it difficult! thank you for your reply

    I have aslo issues in working out the below one which is the part b of the same question. Can you pls help again?

    Net assets - gbp 175000
    Return on net assets - 13%
    Profit margin - 14%
    Gearing - 32.75%
    Profit to the nearest gbp - ???
    Sales revenue to the nearest gbp - ???
  • DSV_AccountingDSV_Accounting Posts: 5Registered
    Accepted Answer
    Return on NA = Net Profit / NA
    Therefore:
    Net Profit = NA x Return on NA
    = 175,000 x 13%
    = £22,750.

    Profit margin = Net Profit / Sales revenue
    Therefore:
    Sales Revenue = Net Profit / Profit margin
    = £22,750 / 14%
    = £162,500.

    See if you can lookup 'rearranging formulae' or similar in maths.
    Reme
  • RemeReme Posts: 16Registered
    Accepted Answer
    Many thanks, much appreciated!
    DSV_Accounting
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