PAYBACK PERIOD

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
please help I am a bit confuse can someone please explain, how do you go about calculating the amount of units to sell in maximising profits I am looking at the ECR paper for 2003 standard. can someone explain.<BR><BR>Thanks

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    PAYBACK PERIOD

    i've not got this paper so this is a guess, but i think it goes like this<BR><BR>you've only got certain resources, not enough to make all the units taht you would like to, so what you've got to do is to work backwards, use the resources to make the maximum products taht give the most profit, then allocate the second most up to the maximum and then the one that gives the least profit at the end when you are unable to make any more of the other first two products, this way you are maximising the profits because you are producing stock which you can get most profit from.<BR><BR>good luck with your exams<BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    PAYBACK PERIOD

    rather than profit, think in terms of contribution
  • System
    System Posts: 100,534 🤖 Admin 🤖
    PAYBACK PERIOD

    can you try with me another explanation.Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    PAYBACK PERIOD

    Hi. <BR><BR>Selling price less variable costs is the contribution per unit. You can also work out the contribution per hour, (if you know how long it takes to make each one).<BR><BR>You work out the contribution for each product e.g. A, B & C. Suppose you have limited hours, whichever product has the greatest contribution per hour you rank number 1, second greatest you rank number 2, last you rank 3.<BR><BR>You then make as many of rank 1 as is required, work out how many hours that takes so you know how many hours you have left. <BR>Make as many of rank 2 that is required (if you have enough hours), again working out how many hours it takes, & seeing how many hours you have left. <BR>Then make as many of rank 3 as hours left allow, (e.g. if you have 20 hrs left, and you can make 3 an hour- you can make 60 units, even though the demand might be 150 units).<BR><BR>This is known as 'best production plan'. You haven't got enough hours (or materials) to meet full demand so you give priority to the product which gives the greater contribution. Bearing in mind that the contribution pays off your fixed costs, & once these are met , gives you your profit.<BR><BR>P.S. This is nothing to do with payback period (your title).<BR><BR>Hope this helps, Scott.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    PAYBACK PERIOD

    Thank you very much, I am ok with this now, thanks

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