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Question Arwin from Kaplan

Ccochem10y ago
Good evening! I'm trying to settle Q51 Arwin from Kaplan Exam Kit for year 2015. In the scenario, Sales revenue equal to 50,000. Cost of sales = 30,000 Sales revenue is expected to increase by 12% for the first year. And it is said that variable cost of sales makes up 85% of cost of sales. So, new revenue will be 56,000 (50,000*1,12). As for the VC it is said in the answer (85%* sales) = 28,560. Still, I can not understand, how did they get 28,560? Because, it this scenario means, that 85% of new level of sales we could not get 28,560. What I did, first I tried to calculate prior level of contribution: if COS = 30,000, then we get fixed cost 15% = 4,500. And VC = 30,000 - 4,500=25,500 So, contribution will be 50,000 - 25,500 = 24,500 Fixed costs won't change, and remain 4,500. So, I can calculate, that previously, VC represented 51% from Sales (25,500/50,000) and I may suppose, that the same proportion will be for the new year. 51%*56,000 = 28,560. This is the only logic I see. My question is, when it was written in the answer 85%* sales = 28,560 - what did they meant? Thank you in advance!
John MoffatJohn MoffatTutor10y ago#1
You are misreading the question. The variable cost is 85% of the cost of sales - not 85% of the sales. The cost of sales at the moment is 30,000, so the variable cost at the moment is 85% x 30,000 = 25,500 If the sales increase by 12%, then you would expect the variable costs to increase as well by 12%. So 25,500 x 1.12 = 28,650
Ccochem10y ago#2
Thank you very much!
John MoffatJohn MoffatTutor10y ago#3
You are welcome :-)
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