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- This topic has 7 replies, 4 voices, and was last updated 5 years ago by John Moffat.
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- December 5, 2017 at 10:20 am #420622
Dear Sir,
I came across the following question (truncated text) from Dec 16 ACCA exam:Based on the prices it charges for entry to similar events in other locations, Hare Events has decided on an entry fee of $55 for the full marathon and $30 for the half marathon. It expects that the maximum entries will be 20,000 for the full marathon and 14,000 for the half marathon
Variable costs:
Full marathon Half marathon
Race packs 15·80 10·80
Water stations 2·40 1·20
Fixed costs:
Council fees 300,000
Risk assessment and insurance 50,000
Marketing 30,000
Photography 5,000QUESTION
Hare Events wishes to achieve a minimum total profit of $500,000 from the running festival.
What are the number of entries Hare Events will have to sell for each race in order to achieve this level of profit, assuming a constant sales mix based on the expected race entry numbers applies?
A Full marathon: 17,915 entries and half marathon: 12,540 entries
B Full marathon: 14,562 entries and half marathon: 18,688 entries
C Full marathon: 20,000 entries and half marathon: 8,278 entries
D Full marathon: 9,500 entries and half marathon: 6,650 entriesMY ANSWER
I work with the C/S ratio and find expected revenue to achieve the profit of 500k is $1,361,538.
Then I apportion based on the mix of 20,000 / 14,000 expected runners:
Full marathon: $1,361,538/34,000*20,000/$55 = 14,561 runners
Half marathon: $1,361,538/34,000*14,000/$30 = 18,688 runners
ANSWER BHowever the correct answer is A:
Weighted average C/S ratio = 65%
Revenue to achieve target profit = $885,000/65% = $1,361,538
Marathon ($110/$152) x $1,361,538 = $985,324/$55 = 17,915 entries
Half marathon ($42/$152) x $1,361,538 = $376,214/$30 = 12,540 entriesI do not understand where the $100/$152 and $42/$100 come from. Could you please explain me why my reasoning is wrong?
Many thanks for your help,
Anne
December 5, 2017 at 11:36 am #420635The total budgeted revenue from the full marathon is 20,000 x $55 = $110,000, and from the half marathon is 14,000 x $30 = $42,000.
So a total of $152,000.Therefore the actual total revenue needs apportioning in the same ratios, i.e. 110/152 for full marathons and 42/152 for half marathons.
December 5, 2017 at 11:57 am #420639Thanks a lot! Once again for this module, if I pass, this will definitely thanks to your lectures!
December 5, 2017 at 12:59 pm #420643Hi
For question 17 of the question, they are asking “Assuming that the race entries are sold in a constant sales mix based on the expected race entry numbers, what is the sales revenue Hare Events needs to achieve in order to break even (to the nearest $’000)?”
I understand that you have to calculate the breakeven revenue but when I am calculating the Weighted average contribution per sale I do not understand why they are multiplying the full marathon and half marathon contributions and sales in the equation by 2 and 1.4. Can you please help with this?
Thank you in advance for your help.
December 5, 2017 at 1:36 pm #420660annemiquel2: You are welcome 🙂
December 5, 2017 at 1:41 pm #420662Pats: They are working in thousands! There are 20,000 full marathons and 14,000 half marathons in the budget. 2:1.4 is the same ratio as 20,000:14,000.
April 16, 2019 at 4:26 pm #513111Hi John, 14000*30 should be 420000.
So shouldn’t we apportion revenue on 110/530April 16, 2019 at 6:20 pm #513138Yes – it was a silly mistake on my part, but the principle should be clear (and I presume you have the original examiners answer anyway 🙂 )
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