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    Suggested Solutions: Where'S Alice? Example A

    Uploaded by

    Sufina Salleh
    The document provides examples of calculating break-even points, profit levels, sales volumes and prices using contribution and profit formulas. Example problems calculate fixed and variable costs, sales, contribution and profit for different scenarios.

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    © All Rights Reserved
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    Suggested Solutions: Where'S Alice? Example A

    Uploaded by

    Sufina Salleh
    17 views3 pages
    The document provides examples of calculating break-even points, profit levels, sales volumes and prices using contribution and profit formulas. Example problems calculate fixed and variable costs, sales, contribution and profit for different scenarios.

    Original Description:

    University of Bristol

    Original Title

    FAFtut A2 Alice ACC

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    © © All Rights Reserved

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    The document provides examples of calculating break-even points, profit levels, sales volumes and prices using contribution and profit formulas. Example problems calculate fixed and variable costs, sales, contribution and profit for different scenarios.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    17 views3 pages

    Suggested Solutions: Where'S Alice? Example A

    Uploaded by

    Sufina Salleh
    The document provides examples of calculating break-even points, profit levels, sales volumes and prices using contribution and profit formulas. Example problems calculate fixed and variable costs, sales, contribution and profit for different scenarios.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    SUGGESTED SOLUTIONS

    WHERE’S ALICE?

    Example a:

    Fixed costs = 30,000


    Contribution per unit (5.00 - 3.50)

    = 20,000 units

    Proof:
    Sales (£5 * 20,000) 100,000
    VCs (£3.50 * 20,000) (70,000)
    FCs (30,000)

    Example b:

    Break even point (units) = Fixed costs


    Contribution per
    unit

    Fixed costs = £45,000

    Variable costs therefore = £185,000 - 45,000 = £140,000

    Variable costs per unit = £140,000 / 20,000 units = £7 per unit

    Sales price per unit = £200,000 / 20,000 units = £10 per unit

    Contribution per unit = £10 - £7 = £3 per unit

    Fixed costs = 45,000


    Contribution per unit 3

    = 15,000 units

    Margin of safety = 5,000 units

    Example c

    Company wishes to make a profit of £25,000 per annum. Therefore,

    NP = Px - (a + bx)
    25,000 = 28x - (58,000 + 23x)
    25,000 = 28x - 58,000 - 23x
    25,000 + 58,000 = 28x - 23x
    83,000 = 5x
    x = 16,600

    Proof:

    SP (16,600 * 28) 464,800


    VC (23 * 16,600) 381,800
     
    Contribution 83,000
    FC 58,000

    Profit 25,000

    Example d

    NP = Px - (a + bx)

    £35,000 = P * 20,000 - (85,000 + £45 * 20,000)


    35,000 + 85,000 + 900,000 = 20,000 P
    20,000P = 1,020,000

    P = £51 per unit

    Proof:

    SP (51 * 20,000) 1,020,000


    VC (45 * 20,000) 900,000
     
    Contribution 120,000
    FC 85,000

    Profit 35,000

    Example e

    Currently Sales price is £7 - considering reducing to


    £6
    Variable costs are £4
    Fixed costs are £3,500 per month (42,000 per annum)
    Current profit is £27,000

    (a) The minimum sales volume that can be justified will be that at which
    the current profit of £27,000 is reached.

    Therefore,
    NP = Px - (a + bx)
    27,000 = 6x - (42,000 + 4x)
    27,000 + 42,000 = 6x - 4x
    x = 34,500

    (b) If sales moved to 30,000 we would see a decrease in profit.

    NP = Px - (a + bx)
    NP = 6 * 30,000 - (42,000 + 4 * 30,000)
    NP = 180,000 - (42,000 + 120,000)
    NP = 18,000

    Decrease in profit = £9,000


    % decrease in profit = 33.333%

    Example f

    (a) Required sales price


    NP = Px - (a + bx)
    95,000 = 20,000P - (70,000 + 60 * 20,000)
    95,000 + 70,000 + 1,200,000 = 20,000P
    20,000P = 1,365,000
    P = £68.25

    (b) Breakeven sales price

    Fixed costs = BEP (units)


    Contribution per unit

    70,000 = 20,000
    Contribution per unit

    70,000 = Contribution per unit


    20,000

    Contribution per unit = £3.50

    Selling price = Contribution + Variable costs


    (Variable costs = £60 per unit)
    Selling price = 60 + 3.50
    Selling price = £63.50

    Example g Technique discussion


    Assumptions and limitations of b/e analysis should be utilised in a critique of the technique. Students
    should have gained ths understanding from their reading.

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