Financial Performance Online exam 2 Help

jodyewhite

Hi All

Can anyone help with Task 8 on the online exam 2, parts A-C.
Many Thanks

Adele69

The answers and most of the workings to the AQ2013 AAT Practice Assessments are in the 2015 ed BPP Question Banks, and an invaluable resource imo.

8(a) Calculate the profit achieved if the price is set at £90 and the demand is 6,000 units
This is the right column: Sales Price x No of Units less Total Cost x No of Units

8(b) Calculate the profit achieved if the price is set at £70 and the demand is 10,000 units but the factory can only produce 8,000 units
This is the left column: though since No of Units is 8,000 where the fixed production cost is £24 for 10,000 units it will still be £240,000 divided by 8,000 units equal £30 per unit produced, so Total Cost is £60 for option 1

8(c) Calculate the profit achieved if the price is set at £70 with demand for 10,000 units, manufacturing 6,000 units and purchasing 4,000 units from the overseas supplier. An overseas supplier has offered to manufacture 4,000 units at a price of £45.
This is similar to 8b. The fixed production cost of £240,000 divided by 6,000 units equal £40 per unit produced, so the Total Cost is £70 which as the price is also £70 is break-even. The profit is entirely derived from the overseas produced units as Sales Price less Overseas Cost of Production x No of Units.

jodyewhite

Hi Adele69

Thank you for your answer, I can see now how they get the 8A answer. Sorry I still don't understand parts b and c, I'm dreading next week. :-(
Many Thanks
JO

Adele69

Oops, yes I see an error in typing this out, missed a 0 in the Fixed production costs, which I have editted.

8(b) in option 1 it gives the fixed production overhead as £24 based on 10000 units which totals £240,000, so at production limited to only 8,000 units would be £240,000/8,000 = £30 per unit + variable costs for material £20 and labour £10 means total unit cost is £60. Production 8,000 units at £70 sales price = £560,000 - 8,000 units at £60 total unit cost £480,000 = Profit £80000

8(c) using same principles in option 1 for 6,000 units the FOH would be more than £30 per unit. Based on £240,000/6,000 units = £40 per unit + same variable costs of £20 and £10 = £70. So the sales price and total cost are the same so breakeven for produced units. Bought from overseas is given at cost £45 per unit and sales price is £70 so £70 - £45 = £25 x 4,000 units bought in = £100,000

jodyewhite

Thank you Adele :-) excellent thank you so much for helping me out.
JO