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Practice assessment 2 - Task 8 a & b

ZanaZana AAT Student Posts: 27

Can someone please help me with the task in the attachment?
Any help would be much appreciated! Thanks you!


  • CornishPixieCornishPixie Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
    Ok, looking at part A first::
    Total anticipated sales revenue will be £18.00 x 20,000 units = £360,000
    Target total operating profit will be £360,000 x 25% = 90,000
    Target total costs will be £360,000 - £90,000 = £270,000
    Target cost per unit (to 2 decimal places) will be £270,000 / 20,000 units = £13.50

    For part B you follow the same principles:
    Target operating profit will be 17.00 x 25% = £4.25
    Target total cost per unit will be £17.00 - £4.25 - £12.75
    Target fixed costs will be £12.75 - £7.00 = £5.75
    (in case you need to enter the figure for manufacturing costs in any other practice papers, use the £140,000 (provided in the table at the top under variable manufacturing costs) and divide it by the number of units - so £140,000 / 20,000 units = £7)

    For the last part, use the figures given in the table at the top.
    You need to know the total costs for the production of 20,000 so 65,000 + 140,000 + 45,000 + 35,000 = £285,000
    Less the variable costs (also in the table) will be £285,000 - £140,000 = £145,000 fixed costs
    You need to divide the fixed costs by the number of units so £145,000 / 20,000 = £7.25 per unit
    You can now complete the calculation by taking £145,000 / 5.75 (from first part of answer B) = 25217.39 rounded to 25217 as you need to show full units not parts of units.

    Hope that helps.
  • ZanaZana AAT Student Posts: 27
    Thank you @CornishPixie !
  • alexnwaalexnwa Registered Posts: 21
    Thank you for your in-depth explanation.@CornishPish
  • Bran278Bran278 ManchesterRegistered Posts: 24
    Can someone confirm why we divide the total fixed costs by the targeted fixed costs per unit in order to determine sales volume??? This is genuinely the first time I've heard of doing that. I thought it would be total fixed costs + targeted profit / contribution per unit???
  • CornishPixieCornishPixie Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
    Hi Bran

    The question asks what the sales volume will need to be.

    You know that overall fixed costs are £145,000 and you also know that the target fixed costs are £5.75 per unit. Therefore, how many units will need to be sold at a target fixed costs of £5.75 to cover the actual fixed costs of £145,000.

    Does that help?
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