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Dear tutor,
This refers to ULNAD co. Ques – in pilot paper. Can u explain for me about this
“…
Increase in costs : $70,005CONTRIBUTION FROM INCREASED SALES
6m x 0.05 x 0.6 =180,000 ????
…”I understand that contribution need to be compared to increase in costs to know how much benefit left over. But why don’t we use 6.3 ( increased sales = 6m x 1.05) to calculate contribution?
We are evaluating whether we should offer discount or not therefore only considering these amounts after discounting
Is that correct?
Just as are looking at the extra costs involved if we offer a discount, we need to look at the extra contribution that results.
They are already earning contribution on the current sales – so we only need to look at the extra contribution resulting from the extra sales.
(Incidentally, I am a little puzzled where you found this question because it is from a very old pilot paper. I do hope that you are using a current edition of a Revision Kit from one of the ACCA approved publishers, because of the change in the format of the exam.)
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