TASK 1: Target profit and breakeven
A company produces garden chairs. The chairs are sold for £50 each, and have variable costs of £30 each. The fixed costs of the company are £500,000. How many chairs do they need to sell to break even, and to make a target profit (TP) of £100,000?
Find the sales required in units (1) to break even, and (2) to hit the target profit.
TASK 2:
What is the total cost for an output level of 220 units?
|
Output (Units)
|
Total costs (£)
|
|
50
|
1,250
|
|
150
|
1,750
|
|
200
|
2,000
|
TASK 3:
The following information is available for the Plastics Ltd who make plastic boxes.
They have got a new competitor recently and there is a shortage of raw material plastics.
Some of their experienced staff left to join the competition. They have been taking on new, less experienced staff to compensate and are keeping the factory open later.
The marketing department has been given a target to increase sales. Admin staff have been absent with Covid symptoms.
The manufacturing manager has left and been replaced by a new trainee manager on a lower salary.
The following information is available for the Plastics Ltd in the month of July:
|
|
Budget
|
Actual
|
Variance
|
|
UNITS
|
£'000
|
£'000
|
|
|
SALES REVENUE
|
60,000
|
58,650
|
|
|
VARIABLElabour
Variable materials
|
10,000
5,000
|
9,000
6,320
|
|
|
FIXED MANUFACTURING COSTS
|
18,000
|
17,000
|
|
|
MARKETING AND ADMIN. EXPENSE
|
10,000
|
10,500
|
|
|
ELECTRICITY
|
12,000
|
13,000
|
|
REQUIRED: Calculate the variances, showing favorable and adverse variances. Explain the possible reasons for the variances, and actions management might take.
TASK 4:
Chatham Slugg manufactures specialized paper clips. Its monthly budget for April 2020 is as follows:
|
|
Budget
£
|
|
Sales units
|
4,000
|
|
Sales: 4,000 x £18
|
72,000
|
|
Direct Materials: 4,000 x 7kg
|
(28000)
|
|
Direct Labour 4000 x (0.5 hours x £6.00)
|
(12000)
|
|
Production Overhead
|
(10000)
|
|
Selling and admin. Overhead
|
(4,000)
|
|
NET PROFIT
|
18,000
|
It may be assumed that all the overheads are fixed in nature.
The actual results for April were as follows:
|
|
Actual
£
|
|
Sales units
|
4,500
|
|
Sales: 4,500 x £17
|
76,500
|
|
Direct Materials: 4,500 x 8kg
|
(36000)
|
|
Direct Labour 4500 x (0.5 hours x £5.00)
|
(11250)
|
|
Production Overhead
|
(10400)
|
|
Selling and admin. Overhead
|
(3,800)
|
|
NET PROFIT
|
15,050
|
REQUIRED: Flex the budget for a sales and production level of 4,500 units and produce a variance to the flexed budget.