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

  • tinkerbell0406
    tinkerbell0406 Registered Posts: 58
    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
  • Reme
    Reme Registered Posts: 19
    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_Accounting
    DSV_Accounting MAAT, AAT Licensed Accountant Posts: 5
    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
  • Reme
    Reme Registered Posts: 19
    Answer ✓
    Many thanks, much appreciated!
    DSV_Accounting
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