4AC012 Answers To Week 3 Tutorial Exercises

4AC012 – Answers to Tutorial Exercises in Week 3 Class Handout
Example - Val
5 chairs per week 3 chairs per week

£ £ £ £
Sales revenue …500…. ………300……
Less: variable costs
Wood …100……. ……60……
Labour ……200……. ………120……
(……300……..) (………180…..)
Contribution ……200…….. ………120……..
Less: fixed cost
Rent (……150…..) (……150….)
Profit/(Loss) ………50…….. ………(30)………
Exercise 1
Wilson
a) Contribution per hat = 35 – (12 + 7 + 1) = £15 per hat
b) Total contribution = Quantity x contribution per hat

= 10,000 x £15 = £150,000
c) Profit = Contribution – Fixed Costs = 150,000 – 82,000 = £68,000
d) Total contribution = 12,000 x £15 = 180,000

Less: Fixed Costs = (82,000)
New Profit = 98,000
Or, take previous profit in part (c), and = 68,000

add on: extra contribution (2,000 x £15) = 30,000
New Profit 98,000
Exercise 2- Jungle Animals
Selling Price Variable Contribution

Cost (a)
£ £ £
Alligators 1.00 1.05 (0.05)
Bear 1.20 1.00 0.20
Cougars 1.10 1.14 (0.04)
Donkeys 1.15 1.08 0.07
Eagles 1.20 0.96 0.24
b) The two toys with highest contribution are Eagles £0.24 and Bear
£0.20
c) Alligators £(0.05) and Cougars £(0.04) have negative contributions so
we would not make them
Exercise 3- Riskmore
Car Home Personal Misc. Total
£ £ £ £ £
Revenue 80,000 60,000 40,000 20,000 200,000
Variable costs (25,000) (25,000) (25,000) (25,000) (100,000)
Contribution 55,000 35,000 15,000 (5,000) 100,000
Fixed costs 50,000
Net Profit 50,000
It seems that all the divisions are making a positive contribution, except for
miscellaneous. However, the car division is actually the most profitable.
Certainly, Riskmore should consider shutting down the miscellaneous division and
increase profits to £55,000 (contributions from Car [£55,000], Home
[£35,000] and Personal [£15,000]= £105,000 less fixed costs of £50,000).
Perhaps it should also focus even more on the car division. However, Riskmore
should be careful that shutting the miscellaneous division would not have a
knock-on effect on the other divisions
Exercise 4- Scrooge Ltd.
Internal bid: £
Direct Materials 25,000
Direct Labour (10,000 hours at £14) 140,000
Variable overheads (10,000 hours at £3) 30,000
195,000
External bid 190,000
Thus saving by buying in (195,000-190,000)= £5,000
So Scrooge would outsource. The chief assumption is that all the Labour is
indeed variable and can be laid off or redeployed easily. Other factors are the
impact upon industrial relations, long-term implications and confidentiality. The
outside bid is marginally superior. However, when these factors are taken into
account it may be better to go with the status quo.
Exercise 5
Break-even point = Fixed costs
Contribution per unit
= 34,000 = 34,000 = 2,000 units

(40.23) 17
Exercise 6
a) Break-even point = Fixed costs
= 5,000 = 2,500 units

(5-3)
b) Total contribution = Quantity x contribution per unit

= 4,000 x £2 = £8,000
c) Margin of safety, in units = 4,000 – 2,500 = 1,500 units
Margin of safety as percentage = 4,000 – 2,500 x 100 = 37.5%

4,000
Exercise 7
Contribution per unit = 75 – 25 = £50
a) Required activity in units = Fixed costs

= 750,000 = 15,000 units

50
b) Required activity in units = Fixed costs + Target Profit
= 750,000 + 125,000 = 875,000 = 17,500 units

50 50
Turnover required = Units to be sold x selling price per unit

= 17,500 x £75 = £1,312,500
Check:
Turnover 1,312,500
Variable costs 25 x 17,500 (437,500)
Contribution 875,000
Less: fixed costs (750,000)
Profit 125,000
Exercise 8- Godfrey
a) Break-even point = Fixed costs

= 40,000 = 40,000 = 5714.3 = 5715 units

(17-4-6) 7
b) Margin of safety, in units = 7,000 – 5,715 = 1,285 units

Margin of safety as percentage = 7,000 – 5,715 x 100 = 18.4%
7,000
c) Activity level required = Fixed costs + Target profit

= 40,000 + 15,000 = 55,000 = 7,857.1 = 7,858 units

(17-4-6) 7
Exercise 9- Cawdron
a) Estimated profit
Contribution per unit = 120 – 50 = 70
Total contribution = Quantity x contribution per unit

= 15,000 x £70 = £1,050,000
Profit 450,000
b) Profit if selling price reduced to £96 per unit
Revised Contribution per unit = 96 – 50 = 46
Total contribution = 15,000 x £46 = £690,000

Profit 90,000
c) Profit if fixed costs increase to £750k

Per part (a), total contribution = 1,050,000
Profit 300,000
d) Break-even point = Fixed costs

= 750,000 = 750,000 = 16,304.3 = 16,305 units

(96-50) 46
Exercise 10- Mainwaring
a) Profit for last year
Sales (£180 x 50,000) 9,000,000

Variable costs (£140 x 50,000) (7,000,000)
2,000,000
Less : fixed costs (600,000)
Profit 1,400,000
OR:
Contribution per unit = 180 – (70+30+40) = £40
Total contribution = 50,000 x £40 = £2,000,000
Profit 1,400,000
b) Proposal 1
Sales (£170 x 60,000) 10,200,000
Variable costs (£140 x 60,000) (8,400,000)
1,800,000
Less : fixed costs (600,000)
Profit 1,200,000
OR:
Revised Contribution per unit = 170 – (70+30+40) = £30
Profit 1,200,000
c) Proposal 2
Sales (£175 x 80,000) 14,000,000
Variable costs (£140 x 80,000) (11,200,000)
2,800,000
Less : fixed costs 600 + 50 (650,000)
Profit 2,150,000
OR:
Revised Contribution per unit = 175 – (70+30+40) = £35
Less: fixed costs 600k + 50k (650,000)
Profit 2,150,000
d) Proposal 3
Sales (£180 x 75,000) 13,500,000
Variable costs ((£140+4) x 75,000) (10,800,000)
2,700,000
Less : fixed costs (600 + 50) (650,000)
Profit 2,050,000
OR:
Revised Contribution per unit = 180 – (70+30+40+4) = £36
Less: fixed costs 600k + 50k (650,000)
Profit 2,050,000
a) Proposal 2 gives highest profit, but concerns over (i) practical

implications of changing production from 50,000 to 80,000 units,
and (ii) reliability of link between advertising and additional sales.

4AC012 Answers To Week 3 Tutorial Exercises

Uploaded by

Copyright:

Available Formats

4AC012 Answers To Week 3 Tutorial Exercises

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

4AC012 Answers To Week 3 Tutorial Exercises

Uploaded by

Copyright:

Available Formats

4AC012 – Answers to Tutorial Exercises in Week 3 Class Handout

5 chairs per week 3 chairs per week

a) Contribution per hat = 35 – (12 + 7 + 1) = £15 per hat

b) Total contribution = Quantity x contribution per hat

c) Profit = Contribution – Fixed Costs = 150,000 – 82,000 = £68,000

d) Total contribution = 12,000 x £15 = 180,000

Or, take previous profit in part (c), and = 68,000

Selling Price Variable Contribution

Car Home Personal Misc. Total

Variable costs (25,000) (25,000) (25,000) (25,000) (100,000)

Contribution 55,000 35,000 15,000 (5,000) 100,000

Fixed costs 50,000

Net Profit 50,000

Exercise 4- Scrooge Ltd.

External bid 190,000

Thus saving by buying in (195,000-190,000)= £5,000

= 34,000 = 34,000 = 2,000 units

= 5,000 = 2,500 units

b) Total contribution = Quantity x contribution per unit

c) Margin of safety, in units = 4,000 – 2,500 = 1,500 units

Margin of safety as percentage = 4,000 – 2,500 x 100 = 37.5%

a) Required activity in units = Fixed costs

= 750,000 = 15,000 units

= 750,000 + 125,000 = 875,000 = 17,500 units

Turnover required = Units to be sold x selling price per unit

a) Break-even point = Fixed costs

= 40,000 = 40,000 = 5714.3 = 5715 units

b) Margin of safety, in units = 7,000 – 5,715 = 1,285 units

c) Activity level required = Fixed costs + Target profit

= 40,000 + 15,000 = 55,000 = 7,857.1 = 7,858 units

Total contribution = Quantity x contribution per unit

Total contribution = 15,000 x £46 = £690,000

c) Profit if fixed costs increase to £750k

d) Break-even point = Fixed costs

= 750,000 = 750,000 = 16,304.3 = 16,305 units

Exercise 10- Mainwaring

a) Profit for last year

Sales (£180 x 50,000) 9,000,000

a) Proposal 2 gives highest profit, but concerns over (i) practical

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.