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Change in profit of revised revenue

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Change in profit of revised revenue

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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    Posts
  • December 4, 2015 at 10:39 am #287494
    Samit
    Member
    • Topics: 6
    • Replies: 19
    • ☆

    Dear Sir, how to work out the following question:

    The budgeted profit statement of a company, with all figures expressed as a percentage of revenue is as follows:

    Revenue: 100
    Variable cost 40
    Fixed cost 20
    Profit 40

    If the sales volume turns out to be only 80% of that budgeted, the profit, expressed as a percentage of the revised revenue will be in %.’

    Thanks.

    December 4, 2015 at 2:06 pm #287535
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51560
    • ☆☆☆☆☆

    If the sales volume is only 80%, then the sales revenue will only be 80% of the budgeted amount. The variable cost will only be 80% of the budgeted amount, but the fixed costs will (be definition) be unchanged.

    So you can calculate what the new profit will be and express that as a % of the new revenue.

    December 4, 2015 at 6:16 pm #287629
    Samit
    Member
    • Topics: 6
    • Replies: 19
    • ☆

    Sir, is the following working correct:

    Revised Revenue: 80% of budgeted = 80% of 100 = 80%
    V.C: 80% of budgeted = 80% of 40 = 32%
    F.C. unchanged = 20%
    So, profit = 80% – (32+20)% = 28%

    In terms of % of revised revenue(100%):
    V.C = 32/80 = 40%
    F.C = 20/80 = 25%
    Profit = 28/80 = 35%

    December 5, 2015 at 8:45 am #287748
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51560
    • ☆☆☆☆☆

    Yes – that is correct 🙂

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