Please could you help me to understand the total fixed costs Answer & margin of safety in part (B)

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Zpanton
Zpanton Registered Posts: 3 New contributor 🐸
in General Qualifications 2022 discussion
Management Accounting: Decision and Control Test Two
Q12 of 15
Tipper Limited manufactures a component for the motor industry. It has just undergone a redesign which reduces the amount of material required while still performing the same function.

Current sales volume is 0.65 million units per annum and this is not expected to change.
Current fixed production costs are £0.135 million.
Current labour cost per unit is £0.17 which is completely variable.
Current material cost per unit is £0.63 and is completely variable.
Assume stock levels are kept at zero.
Variable material cost of the new product will be £0.11 less per unit than the current component.
Selling price will be increased from £1.43 to £1.45
Fixed selling and distribution costs will reduce from £270,000 to £255,000.
Additional investment in assets will be £0.3 million which will be depreciated at £30,000 per annum.
All other costs will remain the same.
(a) Calculate the total annual increase in profit by completing the table below.
Show any amounts that reduce profit with a minus sign prefix.

Total £
Additional revenue
13000

Savings on materials
71500

Reduction in selling and distribution costs
15000

Additional depreciation
-30000

Additional annual profit
69500


(b) Based on the new component, calculate the performance measures shown in the following table to help understand any additional risk.
Except where otherwise stated, show figures to 2 decimal places.

Return on additional investment (%)
23.17

Total fixed costs (whole £)
420000

Contribution per unit £
0.76

Break even sales volume in units (to nearest unit)
552632

Margin of safety (%)
14.98




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  • Zpanton
    Zpanton Registered Posts: 3 New contributor 🐸
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    Please Anyone!! :'(:s
  • Zpanton
    Zpanton Registered Posts: 3 New contributor 🐸
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    ? I’ve figured the fixed cost part, I’m so silly!

    I added all of the fixed costs:

    fixed production £135000,
    fixed selling and distribution of £255000
    and £30000 depreciation which equals to
    £420000.

    I think I was getting mixed up with the way the question put 0.135 mill so I thought that the the figures were all millions for example, £135,000,000.?

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