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Hi All,
I am trying to sort out Q.4(a) of June 2005 Exam and I m stuck. I am very confused by the calculation done in the answer of calculating the percentage of maximum capacity. Is there any specific formula for the calculation? where can I find the theoretical explanation and which book?
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The underlying concept is simply break-even analysis. The examiner applied the break-even formula at £678,855 [fixed costs]/£27.10 [unit contribution] = 25,050 consultations [break-even point].
The examiner calculated the theoretical capacity of 34,560 consultations per annum by 28,800/0.8333 [i.e.20 actual consultation/24 theoretical consultation]. We can work it out in another way, that is, 24 consultation x 6 dentists x 5 days x 48 weeks.
Thank u very much for the response sosologos. I think I’ll pick up something.If I get confused I’ll get to you again. Hope you’ll not mind.
thank usosologos, can u please tell me why did the examiner deduct the fix income from the fixed cost???
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The papers at the professional stage also test the candidates’ competence in exercising professional judgement. This question is a good example.
According to the case, the partnership received an annual fee of £20,800 from a well-known manufacturer of dental products under a fixed-term contract of three years’ duration. The contract commenced on 1 June 2004 and relates to the
promotion of the products of the manufacturer.The purpose of this question is to evaluate the performance efficiency and effectiveness of Dental Health Partnership whereas part (a) focused on the profitability and capacity usage. The nature of the £20,800 was apparently a subsidy or discount from the supplier of some fixed cost items. It is not an income generated from the usage of the service capacity but the fee income is. Therefore, it would be more appropriate to deduct it from the fixed costs to reflect the net fixed cost.
Before you can exercise the professional judgement, you must understand the rationales of various performance management and measurement techniques in order to adapt it contextually. The textbook just tells us to use fixed costs as numerator in the calculation of break-even point but we have to modify the fixed costs here to make a reasonable analysis here.
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