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Minimum target contribution to sales ratio

Forums › ACCA Forums › ACCA APM Advanced Performance Management Forums › Minimum target contribution to sales ratio

  • This topic has 3 replies, 2 voices, and was last updated 12 years ago by angryhamtaro.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • October 2, 2012 at 8:05 am #19933
    Daisy
    Member
    • Topics: 11
    • Replies: 21
    • ☆

    I am doing a question called CTC in bpp revision kit. (Question 4).I am struggling to find an answer for question b(11). I would appreciate if anyone can explain to me how to work this out. I am studying at home and really stuck with this question.

    October 3, 2012 at 11:18 am #56502
    angryhamtaro
    Member
    • Topics: 10
    • Replies: 162
    • ☆☆

    Knowing that to make Nellie financially viable, you must achieve a breakdown in the NPV figure of at least zero. This means increasing the current C/S ratio from 50% in order to increase the NPV from negative $426,392 to zero.

    Hence, you just simply take the sales revenue of all three years, discounted to its present value and arrive at the increase in % of C/S ratio (assuming as ‘A’).

    The working goes like this (answer in millions):

    (4 mil x 0.893 x A) + (9 mil x 0.797 x A) + (5 mil x 0.712 x A) = 0.426392 mil

    14.305 A = 0.426382

    A = 0.02985 or 2.985%

    Minimum C/S ratio needed = 50% + 2.985% = 52.985%

    October 5, 2012 at 5:41 am #56503
    Daisy
    Member
    • Topics: 11
    • Replies: 21
    • ☆

    Thank you so much Angryhamtaro. You explained it very well.

    October 5, 2012 at 1:31 pm #56504
    angryhamtaro
    Member
    • Topics: 10
    • Replies: 162
    • ☆☆

    Sorry, it ain’t breakdown, it’s breakeven. haha 😀

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