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Mcqs

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Mcqs

  • This topic has 1 reply, 2 voices, and was last updated 8 months ago by John Moffat.
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  • May 14, 2020 at 3:19 pm #570833
    pinkyjovin123
    • Topics: 82
    • Replies: 131
    • ☆☆☆

    E operates a marginal coating system.For the forthcoming year,variable costs are budgeted to be 60% of sales value and fixed costs are budgeted to be 10% of sales value.
    If E were to increase the selling price by 10% and all other costs and production and sales volumes were to remain the same what would be the effect on E’s contribution.

    How do we come to a conclusion that it is an increase of 25%.

    Many thanks

    May 14, 2020 at 3:40 pm #570840
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 41510
    • ☆☆☆☆☆

    Suppose the sales value is $100.
    The variable cost will be $60 and therefore the contribution will be $40.

    If the selling price goes up by 10% then it is $110.
    The variable cost is still $60 and therefore the contribution becomes $50.

    This is an increase of 10/40 which is 25%.

    You will get the same answer whatever figure you use for the sales value.

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