November 25, 2016 at 7:00 am #351330francoParticipant
Please i need help on chapter 8 question 8. The answer is D.11,158 but how did they come to the answer?
Currently a product has marginal costs of $40 and a selling price of $60. Fixed costs are
$120,000 and 10,000 units are sold. Inflation will increase both marginal costs and fixed costs
by 10%, but competition means that the selling price can be increased by 5% only.
What volume will have to be sold if the same profits are to be earned?
November 25, 2016 at 7:37 am #351350Ken GarrettKeymaster
Current profit is 20 x 10,000 – 120,000 = 80,000.
New fixed costs 132,000 so contribution needed for same profit is 212,000
Contribution per unit is now 63 – 44 = 19
Required volume is 212,000/19 = 11,158
November 25, 2016 at 10:24 am #351378francoParticipant
Thanks so much, i have the clear picture now
March 3, 2020 at 11:15 pm #564019vinushki1234Participant
I am struggling with question 20.17 in the revision kit to get option A as an answer. On what basis have they arrived at this option?
I highly appreciate if you can help.
A company manufactures and sells four products. Details are as follows:
P Q R S
Contribution per unit 16.0 14.5 17.6 19.0
Net profit per unit 4.6 4.8 5.2 5.0
Contribution per machine hour 5.0 4.8 4.4 3.8
Net profit per machine hour 1.4 1.6 1.3 1.0
Machine hours available in the next period will not be sufficient to meet production requirements. There are no product -specific fixed costs.
What should be the order of priority for production in order to maximise profit?
March 4, 2020 at 7:27 am #564071Ken GarrettKeymaster
You need to direct the restricted resource (machine hours) to where it has the best earning rate. This is indicated by working out for each product the contribution per unit of restricted resource.
This is given in the question:
Production should be undertaken in descending order or this measure until the machine hours are fully used.
March 4, 2020 at 8:27 pm #564268vinushki1234Participant
Thank you very much. I really appreciate the help.
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