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- This topic has 5 replies, 2 voices, and was last updated 2 years ago by John Moffat.
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- December 29, 2021 at 7:01 pm #645025
Hi, I’m having issues with this question. “c) A distributor believes he can increase sales of Sun Loungers by 25% if GC launches a regional advertising campaign. The cost of the campaign is £150,000. Recalculate profits based on the increased sales and advertising costs and state if the proposal should go ahead.”
Which lecture video should I watch to understand how to answer this question? What topic is this?
Thank you very much
Khadar
December 30, 2021 at 8:01 am #645039It is impossible to say without seeing the whole of the rest of the question. It probably related to more than one of the lectures because Section C questions in the exam usually are testing more than one topic.
December 30, 2021 at 11:57 pm #645065Hi John, hope you had a great Christmas. Let me just say thanks for responding and for your work, your lectures helped me succeed in the CIMA BA3 exam recently. Absolute legend.
Here is the entire question (I know how to answer and revise for the others, I am just stuck on C, I don’t know what revision video/topic to look at to help me understand):
The Garden Company Plc (GC) manufactures garden furniture selling directly to garden centres and DIY stores. The three products that are currently in production are chairs, tables and sun loungers. The board of directors are looking at the forecasted sales for the year ahead and have summarised the following information:
Product: Garden Chairs Garden Tables Sun Loungers
Sales Volume (units) 48,000 12,000 15,000
Sales Price / unit £48.00 £150.00 £250.00
Variable Cost / unit £25.00 £70.00 £150.00Total Fixed Costs: £3,000,000
To achieve the Company’s profitability targets and meet shareholder expectations the directors are aiming to achieve a profit in excess of £1,000,000.
Required:
a) Calculate GC’s total operating profit based on the expected sales volumes.
(5 marks)b) Calculate the sales mix required in both units and revenue to achieve £1,000,000 profit.
(10 marks)c) A distributor believes he can increase sales of Sun Loungers by 25% if GC launches a regional advertising campaign. The cost of the campaign is £150,000. Recalculate profits based on the increased sales and advertising costs and state if the proposal should go ahead.
(5 marks)d) State the benefits of using cost volume profit analysis in manufacturing organisations.
December 31, 2021 at 1:40 pm #645123I am a bit puzzled because presumably you were happy with paper (a) of the question.
For part (c) all you are required to do is repeat part (a) but with sales of sun loungers being 25% more (i.e. 18,750) and with fixed costs being $150,000 more.
If the profit is more than the profit calculated in part (a) then the proposal should go ahead. If the profit is less then the proposal should not go ahead.
December 31, 2021 at 6:46 pm #645142That seems so obvious now. Sometimes I manage to understand and succeed in complicated stuff, only to then be stuck on something so basic. Thank you very much for responding, sir. Happy New Year.
January 1, 2022 at 10:17 am #645158You are welcome, and Happy New Year to you also 🙂
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