December 2008 question no.1

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• pavanpavanmehta
Participant

In December 2008 question.1 I could not understand calculation of gross profit.
specially for second and third year where sales price is also reduce.

John Moffat
Keymaster

The unit sales are as follows:

Year 1 – 18,000
Year 2 – 19800 (increase of 10%)
Year 3 – 21780 (increase of 10%)

The selling prices per unit are:

Year 1 – \$12
Year 2 – \$12
Year 3 – \$11.40 (decrease of 5%)

The cost per unit are:

Year 1 – \$7.20 (gross profit is 40% of selling price, so cost is 60%)
Year 2 – \$7.20 (purchase price stays constant per the question)
Year 3 – \$7.20

So….the total gross profits are:

Year 1 – 18000 x (12 – 7.20) = 86400
Year 2 – 19800 x (12 – 7,20) = 95040
Year 3 – 21780 x (11.40 – 7.20) = 21780

pavanpavanmehta
Participant

Thank you

John Moffat
Keymaster

You are welcome

sarahlim
Participant

Hi,I did this question myself but I failed to calculate the GP for the last two years and I missed out the words “next four years” in the question so I start the year from 2005 to 2008 again….how many marks I will get?

John Moffat
Keymaster

It is impossible to say how many marks you would get without actually seeing an answer. You do get marks if the approach is correct, even if the numbers are wrong.

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