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Registered Posts: 15
I'm resitting the synoptic for the third time next week after a break and I'm having a complete meltdown with sample assessment 1 question 1.4. I have no idea what I'm doing . Can anybody help please as my college have given me no support

• Registered, AAT Student Posts: 42
@Purple_pain do you mean practise assessment 1, question 1. d? As this is just a drop-down about access that a member of staff should have.
Or do you mean practise assessment 1, question 4?
• Registered Posts: 15
The margin part, I just can't work it out 😔
• Registered, AAT Student Posts: 42
I cant see it, practice paper 1 for synoptic level?
• Registered Posts: 15
Sorry, it's the Professional one
• Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
Can you do a screenshot and post it here so that people will know what the question is. I'm now qualified so cannot access the student resources section.
• Registered Posts: 15

• Registered Posts: 15
I have 2 screens so having a bit of a nightmare screenshotting
• Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
Ok so first you need to work out your marginal costs.

You are told that the variable element of production overheads is equal to 15% of the direct costs. Therefore, for NP1, your direct costs are £18.00 + 15% = £20.70. For NP2, it will be £42.00 + 15% = £48.30

Now use this information to work out the rest.

So to undercut the competition
NP1 The competition is £21.00 x 250 = £5,250 but for SL Products, using the marginal cost it would be £20.70 x 250 = £5,175. 5,250 - 5,175 = £75

NP2 The competition is £52.00 x 600 = £31,200 but for SL Products, using the marginal cost above, it would be £48.30 x 600 = £28,980. 31,200 - 28,980 = 2,220

Use this logic for market price and spreadsheet price.
• Registered, AAT Student Posts: 42
As @CornishPixie has already explained how to do the marginal cost, I will just do the others

This is for NP1 only

Market price
£28 x 150 units = £4200
£20.70 (marginal cost worked out above) x 150 units = 3105

4200 - 3105 = £1095

£35.10 x 50 units = £1755
£20.70 x 50 units = £1035

£1755 - £1035 = £720

However, I struggled with this question and I get how to do it (after looking at the answers and working back) but I don't understand why you keep using the marginal cost. Don't really understand what I am working out and why I am not using any of the other information like the sales price or the 30% mark up.
• Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
Hi chloewain. Remember that the information tells you that the company operates a full cost recovery (FCR) and goes on to tell you that 15% of the production overheads are variable. With a FCR system, all direct costs plus a percentage of overhead costs are taken into consideration when working out the pricing structure. That's why the marginal costs are used.

I think you will find that the 30% mark up would be a point of discussion in the last part of Q4
• Registered, AAT Student Posts: 42
Hi @CornishPixie Thank you very much for explaining that, I now understand

But what I'm saying is this £75, What does it show? How does it show that we would undercut the competition by that much? I would understand if it was asking for units it would take for us to undercut the competition. But how is comparing our marginal cost per unit, times by the number of units given in the table 'undercut competition' showing that we would undercut the competition? I am obviously not understanding it correctly, or what the table is showing.

The same with market price. How can this be defined by a price times by a unit?
What does it actually show? Is it saying, this is the market price (£28 per unit, and you would have to make 150 units? Does the 150 units come from how much they think we can sell on the market?)
And our marginal cost is already £20.80, so we would have £1095 'leeway' if we made the market units?

So is this whole concept like target costing?

So the 'undercut the competiton' shows us what the competition is selling the goods for and how many units they are selling? Is this correct? I just need to see it in a logical way to understand how and why I am working something out

Thank you very much
• Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
Hi chloewain. Just quickly, as I'm out this evening, this question is working on selling goods that are in a very competitive market. They, therefore, need to know how their prices compare to other competitors.

The £75 is how much less SL's product will cost to produce and sell compared to the others, using their own production costs but against the number of units that the competitors are using. The number of units is how many they anticipate selling at each given price. By doing the calculations, you are knowledgeable about how much less/more SLs products are in each category are and how many they will need to sell in order to balance the books.

Hope that helps.
• Registered, AAT Student Posts: 42
@CornishPixie I'm so sorry to interupt you, but thank you very much for replying while out

THE PENNY HAS JUST DROPPED!

I completely get it now! I'm so sorry haha. So the price is increasing, but units are decreasing because they will only be able to sell less if the price is hirer.

Thank you for your help, i completely get the question now
• Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 116
Not quite there yet Chloewain. It's nothing to do with price increasing and units decreasing.

Your first task is to work out the marginal costs for NP1 and NP2. Then you use that information to work out how much less/more each product will cost SL Products than it's competitors using market price, the spreadsheet price and to undercut the competition. All you are doing in task (a) is doing the calculations.

In task (b), you are asked which version will contribute most to profit. That is the key question - how much profit there could be, if these two products were made. The company is trying to gauge the best price to sell the products at so your calculations in (a) will inform their decision.

Hope that helps
• Registered, AAT Student Posts: 42
@CornishPixie Thank you, but i was getting my head round what the prices even are. How can they come up with competitors, market price and spreadsheet. I dont even know what spreadsheet price means. Is it just a number that is plucked out of the air? And why have they all got different unit amounts, how is this relevant?
• Registered Posts: 144
@chloewain_ The spreadsheet price is the proposed change by the sales director after the mark up. The market price is the going rate and the undercut price is a below market value price.

The unit amounts are so you can calculate the full contribution because although the spreadsheet price has a higher contribution per unit when you factor in the expected sales at that price for NP1 it no longer does.
AAT Level 4, MAAT
• Registered, AAT Student Posts: 42
Thank you very much @Pian32 for also helping me

I completely understand what you are saying, but still dont understand how they can make up unit amounts from nowhere.
• Registered Posts: 144
@chloewain_ it's like making a budget. You predict the amount expected from the year and go from there. In this case it's a prediction on what would happen at different levels. The numbers for us with limited insight into the workings are random but it could have more calculation behind it that we don't need to see for the question.

In a business situation you'd look more into the numbers to make sure they have a good basis. It could be a discussion point for the correct question though if the person doing the calculations could have been biased.
AAT Level 4, MAAT
• Registered, AAT Student Posts: 42
Righ @Pian32 thank you very much. So I am looking too much into it really then