Financial Performance sample assessment 2 question 8 b)

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Randumb
Randumb Registered Posts: 3
in AAT Level 4 (Level 8 in Scotland)
Not sure if pasting a screenshot here is allowed, but the question is about a scenario of 2 different sales prices and volumes.

Whatever I try and do to calculate it, I cannot get the same answer as in part b). Answer document says £80000 but the closest I got was £64000. I think it has something to do with the fixed overheads changing based on units produced, but I just don't know, and I'm not in term time anymore so I can't reach my tutor (I missed the first chance at this exam and have it coming up this week).

If anyone can talk me though it I'll b massively grateful.

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  • MMG
    MMG Registered Posts: 5
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    Fixed production cost in total =constant =£240000, won't change if company will produce 10000, or 5000, or 500 units. However, it will change fixed production cost per unit. for 10000 units is £24 per unit, for 5000 is £48 per unit, for 500 units is £480 per unit.

    Therefore, you have to £240000/8000 = £30
    Sales price £70
    V. material cost £20
    V. l. cost £10
    Fixed pr per unit £30
    Total cost £60

    £70-£60=10x8000 units=£80000, or £70x8000-£60x8000=£80000
    Demand is 10000 but company can produce only 8000 units.

    Try to understand costs, how they behave when production is changing.

  • Randumb
    Randumb Registered Posts: 3
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    Thanks a lot!

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