FTC Activity 6 chapter 1 of ECR

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Ok the answer in the back of the book has taken the cost per unit as £3, question states £2. Are they trying to confuse the hell out of me or is this just a printing error???

(really doesn't help if error, wonder how many more there are)

:?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FTC Activity 6 chapter 1 of ECR

    If you can post the question, I will try to help you with the calculations. I passed on my books after the exam
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FTC Activity 6 chapter 1 of ECR

    A manufacturing business has variable production costs of £2 per unit and fixed costs of £50,000. These include rent of £18,000 per annum. If more than 50,000 units of the product are made, then additional floor space must be rented at a cost of £20,000 per annum. What is the total cost of production and the cost per unit at the following production levels: (i) 40,000 units (ii) 50,000 units (iii) 60,000 units?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FTC Activity 6 chapter 1 of ECR

    Hi FPettifer

    must admit - these costing questions can be very confusing, but here we go:

    This question is assessing Variable costs/Fixed costs and Stepped fixed costs. Whilst Variable costs (direct materials labour and expenses) are directly affected in relation to the output levels produced. Therefore, no matter how much you produce the variable cost of one unit will always be £2.00, whether i make 10 or 1000.

    Fixed costs, as these are known as period costs and will have to be paid no matter how many units i produce in a period will generally stay the same. However, stepped costs, are fixed costs that have had to increase after a significant increase in level of production - for instance the rent of warehouse space to hold extra stock / finished goods - as in this case.

    The cost per unit is used in order to consider a suitable selling price and consideration, and a decent margin (we hope)

    You have to consider the fixed costs in respect to selling price - otherwise you'll never make it. Also, this shows that when considering the cost per unit and increased levels of production, we can see that the cost per unit will decrease due to economies of scale. Therefore, the more you produce, the higher profit per unit you will make - so long as your overheads do not increase again!

    Going back to the question then -

    output units 40000 units
    Variable costs 2.00 p.u £ 80000
    Fixed Costs £ 50000 (18000 is rent)
    Total cost £ 130000

    So Cost per unit is £130000 / 40000 units = £3.25 per unit



    output units 50000 units

    Variable costs 2.00 p.u £ 100000
    Fixed Costs £ 50000 (18000 is rent)
    Total cost £ 150000

    So Cost per unit is £150000 / 50000 units = £3.00 per unit



    output units 60000 units
    Variable costs 2.00 p.u £ 120000
    Fixed Costs £ 50000 (18000 is rent)
    Additional Fixed cost £ 20000
    Total cost £ 190000

    So Cost per unit is £190000 / 60000 units = £3.17per unit

    Therefore, due to the level of production - in the last part the cpu has decreased to £3.17, despite increased overheads, from the original £3.25 cpu


    Hope this helps - Chris
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FTC Activity 6 chapter 1 of ECR

    HI FP
    Here is how I would've done it
    At 40,000 units
    Vc=£80000
    fc= 50000
    TC=130000
    UC=£3.25


    At 50000 units
    VC=£100000
    FC=  50000
    TC=150000
    UC=£3.00

    At 60000 units
    VC=£120000
    FC=  70000
    TC=190000
    UC=£3.17
    Hope this helps
    Tom


  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FTC Activity 6 chapter 1 of ECR

    Sorry to repeat it, we posted perplies at about the same time
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FTC Activity 6 chapter 1 of ECR

    that's the answers I got, so it is just an error in the book then as you haven't got £3 from anywhere either.

    Cheers.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FTC Activity 6 chapter 1 of ECR

    Hiya DLaccts,

    no worries - nice to know i got my figs right !

    Chris :)

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