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Tramont Co Pilot Question

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Tramont Co Pilot Question

  • This topic has 2 replies, 2 voices, and was last updated 7 years ago by bilalahmad99.
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  • January 29, 2017 at 4:11 am #370084
    bilalahmad99
    Member
    • Topics: 48
    • Replies: 53
    • ☆☆

    Hello fellow students,
    Part a working 7 in calculating additional tax, contributions and opportinity cost. Could anybody tell how the additional contributions of 34, 63, 140 and 184 in year 1, 2, 3 and 4 was arrived at. It will be a great help. Thanks

    May 8, 2017 at 8:43 pm #385420
    sandyh
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    These values represent the after-tax profit that Tramont Co has earned from selling the component to the Gamala operation.
    The profit (contribution) is $4 per component but is subject to inflation within the US at 3% per year.
    In year 1 12,000 components are sold generating $4 each, a contribution of $48,000
    This is then subject to tax in the US at 30% leaving an after tax profit of $33,600 which when rounded to the nearest $000 gives $34.

    In year 2 you must apply 1 year of inflation so the component is producing a contribution of $4.12. Then multiply by the 22,000 sold to get a total contribution of $90,640 and deduct 30% tax leaving $63,448 or to the nearest $000 $63

    In year 3 you must apply 2 years of inflation to the price (or at 1 year to the year 2 price) which gives $4.2436. Multiply by the volume sold (47,000) and deduct tax to give $139,614 or $140 to the nearest $000.

    Year 4 [I think you know the routine] 3 years inflation in the price is $4.370908. The sales volume is 60,000 = $262,254. If you then apply 30% tax it bring it down to $183,578 or $184 to the nearest $000.

    July 25, 2017 at 4:12 am #398517
    bilalahmad99
    Member
    • Topics: 48
    • Replies: 53
    • ☆☆

    Thanks, Sandyh for the answer. Brilliant

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