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Q1. A company has the following costs and revenues relating to a product
Selling price £114.00
Less
Labour @ £8.50 per hour £42.50
Raw materials @ £2.80 per kg. £25.20
Variable overheads £ 8.80
Fixed cost per unit £ 7.50
= Profit per unit £30.00
What is the contribution margin?
Contribution margin = Selling price - Variable Costs = Selling price - (Labour + Raw materials + Variable overheads) = £114 - (£42.50 + £25.20 + £8.80) = £37.50
Q2. A winemaker produced and sold 20,000 bottles of wine last month. The variable costs per bottle are £1.75 and the selling price is £5.75. Last month the company made a loss of £5,000. To make a profit of £13,000 next month how many bottles does the winemaker need to produce and sell? The company charges its fixed costs monthly.
Fixed Cost + Target Profit Fixed Cost + 13,000
----------------------------------- = ----------------------------------------
Contribution margin per unit £5.75 per unit - £1.75 per unit
Sales - Variable Cost = Contribution
Contribution - Fixed Cost = Profit or Loss
(£5.75 per unit x 20,000 units) - (£1.75 per unit x 20,000 units) = (£5.75 - £1.75) x 20,000 = £80,000 = Contribution
£80,000 - FC = -£5,000
£80,000 + £5,000 = FC = £85,000
(£85,000 + £13,000) / (£5.75 per unit - £1.75 per unit) = (£98,000 / £4 per unit) = 24,500 bottles of wine (i.e. units) to make a £13,000 profit given the above variables
Q3. A product goes through three divisions: (A) The production division
(B) The finishing division
(C) The packaging division
The basic fixed and variable costs per unit at current levels of output in each division are:
Division Variable costs Fixed costs
£ £
A 30 40
B 50 20
C 40 10
If internal transfers take place at 200% of full costs, and the final selling price is £600, then in terms of maximising divisional profit, how are the divisions
Selling price £114.00
Less
Labour @ £8.50 per hour £42.50
Raw materials @ £2.80 per kg. £25.20
Variable overheads £ 8.80
Fixed cost per unit £ 7.50
= Profit per unit £30.00
What is the contribution margin?
Contribution margin = Selling price - Variable Costs = Selling price - (Labour + Raw materials + Variable overheads) = £114 - (£42.50 + £25.20 + £8.80) = £37.50
Q2. A winemaker produced and sold 20,000 bottles of wine last month. The variable costs per bottle are £1.75 and the selling price is £5.75. Last month the company made a loss of £5,000. To make a profit of £13,000 next month how many bottles does the winemaker need to produce and sell? The company charges its fixed costs monthly.
Fixed Cost + Target Profit Fixed Cost + 13,000
----------------------------------- = ----------------------------------------
Contribution margin per unit £5.75 per unit - £1.75 per unit
Sales - Variable Cost = Contribution
Contribution - Fixed Cost = Profit or Loss
(£5.75 per unit x 20,000 units) - (£1.75 per unit x 20,000 units) = (£5.75 - £1.75) x 20,000 = £80,000 = Contribution
£80,000 - FC = -£5,000
£80,000 + £5,000 = FC = £85,000
(£85,000 + £13,000) / (£5.75 per unit - £1.75 per unit) = (£98,000 / £4 per unit) = 24,500 bottles of wine (i.e. units) to make a £13,000 profit given the above variables
Q3. A product goes through three divisions: (A) The production division
(B) The finishing division
(C) The packaging division
The basic fixed and variable costs per unit at current levels of output in each division are:
Division Variable costs Fixed costs
£ £
A 30 40
B 50 20
C 40 10
If internal transfers take place at 200% of full costs, and the final selling price is £600, then in terms of maximising divisional profit, how are the divisions