Page 231 - P1 Integrated Workbook STUDENT 2018

Answers

Target profit

Target profit units = (fixed costs + target profit)/WA Contribution

= ($200,000 + $300,000)/$18.33 = 27,278 units

Target profit revenue = (fixed costs + target profit)/WA C/s ratio

= ($200,000 + $300,000)/0.34375 = $1,454,545

Chapter 5

Example 1

Robson has produced a made-to-order product for a customer at a cost of
$50,000, which was to have been sold to the customer for $120,000. The
customer has now gone bankrupt. Robson has commissioned a consultant to
determine whether another use for the product could be found. The
consultant’s fee is $4,000 which is due for payment in 2 weeks’ time.

The consultant has determined that Robson has the option of converting the
product into a different version which it estimates could be sold for $85,000.
The conversion would require the following:

 1,000 kgs of material A. The company currently has 2,500 kgs in stock
which was bought last month for $2.00 per kg, although the current
purchase price has now increased to $2.15. Material A is regularly used
in the company's other products.

 2,000 kgs of Material B. The company currently has 600 kgs in stock
which was bought last month for $3.00 per kg although the current
purchase price is now $3.50. There is no other use for the material and it
has a scrap value of $1.00 per kg.

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