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Question ACCA Dec 16

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Question ACCA Dec 16

  • This topic has 7 replies, 4 voices, and was last updated 6 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • December 5, 2017 at 10:20 am #420622
    annemiquel2
    Member
    • Topics: 14
    • Replies: 5
    • ☆

    Dear Sir,
    I came across the following question (truncated text) from Dec 16 ACCA exam:

    Based on the prices it charges for entry to similar events in other locations, Hare Events has decided on an entry fee of $55 for the full marathon and $30 for the half marathon. It expects that the maximum entries will be 20,000 for the full marathon and 14,000 for the half marathon
    Variable costs:
    Full marathon Half marathon
    Race packs 15·80 10·80
    Water stations 2·40 1·20
    Fixed costs:
    Council fees 300,000
    Risk assessment and insurance 50,000
    Marketing 30,000
    Photography 5,000

    QUESTION
    Hare Events wishes to achieve a minimum total profit of $500,000 from the running festival.
    What are the number of entries Hare Events will have to sell for each race in order to achieve this level of profit, assuming a constant sales mix based on the expected race entry numbers applies?
    A Full marathon: 17,915 entries and half marathon: 12,540 entries
    B Full marathon: 14,562 entries and half marathon: 18,688 entries
    C Full marathon: 20,000 entries and half marathon: 8,278 entries
    D Full marathon: 9,500 entries and half marathon: 6,650 entries

    MY ANSWER
    I work with the C/S ratio and find expected revenue to achieve the profit of 500k is $1,361,538.
    Then I apportion based on the mix of 20,000 / 14,000 expected runners:
    Full marathon: $1,361,538/34,000*20,000/$55 = 14,561 runners
    Half marathon: $1,361,538/34,000*14,000/$30 = 18,688 runners
    ANSWER B

    However the correct answer is A:
    Weighted average C/S ratio = 65%
    Revenue to achieve target profit = $885,000/65% = $1,361,538
    Marathon ($110/$152) x $1,361,538 = $985,324/$55 = 17,915 entries
    Half marathon ($42/$152) x $1,361,538 = $376,214/$30 = 12,540 entries

    I do not understand where the $100/$152 and $42/$100 come from. Could you please explain me why my reasoning is wrong?

    Many thanks for your help,

    Anne

    December 5, 2017 at 11:36 am #420635
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54835
    • ☆☆☆☆☆

    The total budgeted revenue from the full marathon is 20,000 x $55 = $110,000, and from the half marathon is 14,000 x $30 = $42,000.
    So a total of $152,000.

    Therefore the actual total revenue needs apportioning in the same ratios, i.e. 110/152 for full marathons and 42/152 for half marathons.

    December 5, 2017 at 11:57 am #420639
    annemiquel2
    Member
    • Topics: 14
    • Replies: 5
    • ☆

    Thanks a lot! Once again for this module, if I pass, this will definitely thanks to your lectures!

    December 5, 2017 at 12:59 pm #420643
    pats
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    Hi

    For question 17 of the question, they are asking “Assuming that the race entries are sold in a constant sales mix based on the expected race entry numbers, what is the sales revenue Hare Events needs to achieve in order to break even (to the nearest $’000)?”

    I understand that you have to calculate the breakeven revenue but when I am calculating the Weighted average contribution per sale I do not understand why they are multiplying the full marathon and half marathon contributions and sales in the equation by 2 and 1.4. Can you please help with this?

    Thank you in advance for your help.

    December 5, 2017 at 1:36 pm #420660
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54835
    • ☆☆☆☆☆

    annemiquel2: You are welcome 🙂

    December 5, 2017 at 1:41 pm #420662
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54835
    • ☆☆☆☆☆

    Pats: They are working in thousands! There are 20,000 full marathons and 14,000 half marathons in the budget. 2:1.4 is the same ratio as 20,000:14,000.

    April 16, 2019 at 4:26 pm #513111
    iza1
    Participant
    • Topics: 115
    • Replies: 112
    • ☆☆☆

    Hi John, 14000*30 should be 420000.
    So shouldn’t we apportion revenue on 110/530

    April 16, 2019 at 6:20 pm #513138
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54835
    • ☆☆☆☆☆

    Yes – it was a silly mistake on my part, but the principle should be clear (and I presume you have the original examiners answer anyway 🙂 )

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Viewing 8 posts - 1 through 8 (of 8 total)
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