See BPP revision kits number Bits and Pieces
(1) Why if I calculate like that I don’t get the answer for the calculation of incremental revenue????? :
BEFORE INCLUSION OF SUNDAY
number of days before inclusion of sunday = 50 weeks * 6 days = 300 days
Sales revenue= $10000 * 300 days = $3000000
Gross Profit= $3000000 * 70%= $2100000
Purchases= 3000000 – 2100000 = $900000
AFTER INCLUSION OF SUNDAY
number of days after inclusion of sunday = 50 weeks * 7 days= 350 days
Sales revenue= (160% * $10000) * 350 days= $5600000
Gross Profit= 5600000 * 50%= $2800000
Purchases= 5600000- 2800000= $2800000
Discount received= 2500000 * 5%= $140000
Therefore Incremental benefit :
Increase in gross Profit (2800000- 2100000) = $ 700000
Discount received = $140000
Why is it not good???
(2) And also why is the Half-day off not taken into consideration as a relevant benefit as it reduces extra cost????
Please help specially for the 1st question
Funnily enough I’m on this question too. I haven’t completed it yet, so I don’t want to look at the answers quite yet. However, when you worked out the incremental revenue for Sundays, I notice that you multiplied it by 350, and therefore calculated all days as being 60% higher than average. I could be wrong but maybe that’s the reason you have a different result for revenue.
I’ll have a look at the rest of the question tomorrow, as I’m a bit sleepy now! I find these kind of questions very tricky.
I think I went about this a different way to you, but this is how I tackled it.
Incremental revenue (just revenue for Sunday) = $10,000*1.6*50 = $800,000
Mon-Sat purchasing= $10,000*0.3*6*50=$900,000
Incremental purchasing (Sun purchasing) = $800,000*0.5=$400,000
Total purchasing now qualifies for discount, therefore ($900,000+$400,000)*0.95=$1,235,000
The other incremental costs are staff, manager’s bonus, lighting and heating, which I think are more straightforward.
I was also confused as to why the reduction of staffing levels during the week is not relevant. I thought at first that the relevant cost would be the cost of overtime, plus two hours basic rate (6 hours on Sunday minus 4 hours weekday). Hopefully someone else can explain this.
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