Tutorial 3d
L Cert Accounting H Level 2011 Q8
Solution and Workings
Question 8 €
Sales (90,000 units)
Less Variable Costs
Direct Materials
Direct Wages
Factory overhead (40%)
Sales Commision (5% of Sales)
Contribution
Less Fixed Costs
Factory overhead (60%)
Selling expenses (excl Commission)
Administration expenses
Net Profit
(a)
(b)
(c )
390,000
236,000
32,800
58,500
49,200
46,500
130,000
Break even point
Fixed Costs
CPU
Margin of safety
Budgeted Sales
90,000
1,170,000
€
per unit
13.00
[717300]
452,700
[7.97]
5.03
[225,700]
227,000
225,700
5.03
=
44,871 units
-­‐ Break even point
-­‐ 44,871 =
45,129 units
Number of Units to Increase profits by 20%
Net profit 2010
Increase in net profit 20%
Net profit 2011
227,000
45,400
272,400
Fixed Costs + Target Profit CPU
=
225,700 + 272,400 =
5.03
99,026 units
Profit if selling price dropped to €11 in 2011
Sales (110,000 x €11)
Less Variable costs (110,000 x €7.87)
Total Contribution (110,000 x €3.13)
Less Fixed Costs
Profit
(d)
€
1,210,000
[865,700]
344,300
240,700
€103,600
The selling price to be charged
Let S be the Selling Price
Sales 90,000S
90,000S
90,000S
85,500S
SP
SP
-­‐
Variable Costs
-­‐ 90,000 [7.32 + 0.05S]
-­‐ 658,800 -­‐ 4,500S
-­‐
4,500 S =
=
=
=
=
=
=
Fixed Costs
252,784
479,784
479,784
1,138,584
€13.3168
€13.32
+ Profit
+ 227,000
+ 658,800
Page 1 of 2
NUI Galway
Please go to State Examinations Commission Exam Materials Archive for Exam Paper and Official State Solutions:www.examinations.ie/archive/
Tutorial 3d
L Cert Accounting H Level 2011 Q8
Solution and Workings
e)
Let the number of units = N
Sales Revenue =
Profit =
16N
1.6N
Sales = Variable Costs +
16N =
8.12N
+
6.28N =
225,700
N =
35,939.49
N = 35,940 units
f) 12
Fixed Costs 225,700
+
+
Profit
1.6N
Limitations/assumptions: Variable costs are assumed to be completely variable at all levels of output. However variable costs may decrease due to economies of scale or may increase because of increased costs.
It is assumed that in marginal costing fixed costs remain the same although most fixed costs
are step-­‐fixed and are only fixed within a relevant range.
It is assumed that all mixed costs are easily separated into fixed or variable. The High Lo
method can be used for this purpose but it is not always possible to do this.
It is assumed that the selling price per unit is constant and does not allow for discounts.
Production in a period usually equals sales. Fixed costs are charged in total to a period
and are not carried forward to next period. Step Fixed Cost
Step fixed costs are costs that are fixed within a certain range of activity but change outside of
that range. E.g. Rent could be fixed up to a certain level of production. However, if production
increases and results in the rental of more factory space, then the rent would increase to a new
level. Thus the fixed costs would increase in steps. Page 2 of 2
NUI Galway
Please go to State Examinations Commission Exam Materials Archive for Exam Paper and Official State Solutions:www.examinations.ie/archive/