5022ACC WEEK 7 SEMINAR
CVP topic :
Question 3 – Despard Ltd1
Despard Ltd manufactures and sells sports shoes. The following data have been extracted from
the next year’s budget:
Variable Cost Cost per unit (£)
Direct Material 18
Direct Labour 15
Overheads (indirect production costs) 7
Sales Price (per unit) 60
Total Fixed Costs (per annum) 350,000
Expected Sales Units (per annum) 20,000 pairs
Required:
1. Assume that the Selling Price and Variable Costs per unit remained unchanged throughout the
year. Construct an Income Statement showing expected profit or loss for the next year.
Income Statement
£
Revenue £60 x 20,000 1,200,000
- Variable costs £40 x 20,000 (800,000)
Contribution £400,000
- Fixed costs £350,000
Net Profit £50,000
2. Calculate the following:
1
Ayaz, H. (2023). 4011ACC Seminar 9 Questions. Seminar conducted at the School of Economics, Finance
and Accounting. Coventry University.
, 5022ACC WEEK 7 SEMINAR
a. Contribution per unit =Sales price per unit – Variable cost per unit = £60 – (£18 +£15
+£7) = £20
b. Brea-even points (BEP) in units and sales revenue
BEP (units)= Fixed Cost / Contribution = £350,000 / £20 = 17,500 pairs of shoes
BEP (£) = BEP units x Selling price = 17,500 x £60 = £1,050,000
c. Expected pairs of shoes to be sold to achieve £150,000 target profit
Target Sale Unit = (Fixed costs + Target Profit) / Contribution per unit = (£350,000 +
£150,000) / £20 = 25,000 pairs of shoes
d. The margin of safety (MOS) in percentage %
Margin of Safety = (Expected sale – BEP)/Expected sale x100 = (20,000-17,500) /
20,000 x100 = 12.5%
Part 2
The sales manager believes that Despard Ltd will be able to sell 5,000 more shoes than the
original plan if the quality of the product is improved. To do this, the company would use better
quality, hence material cost would rise to £22 per unit. The increase in sales volume will also
increase annual fixed costs to £380,000. Other costs remain unchanged. The company does not
intend to increase its selling price so as to maintain its market share.
Variable Cost Cost per unit (£)
Direct Material 22
Direct Labour 15
Overheads (indirect production costs) 7
Sales Price (per unit) 60
Total Fixed Costs (per annum) 380,000
Expected Sales Units (per annum) 25,000 pairs
(20,000+5,000)
3. Based on the new information, calculate;
a. The revised profit
2
CVP topic :
Question 3 – Despard Ltd1
Despard Ltd manufactures and sells sports shoes. The following data have been extracted from
the next year’s budget:
Variable Cost Cost per unit (£)
Direct Material 18
Direct Labour 15
Overheads (indirect production costs) 7
Sales Price (per unit) 60
Total Fixed Costs (per annum) 350,000
Expected Sales Units (per annum) 20,000 pairs
Required:
1. Assume that the Selling Price and Variable Costs per unit remained unchanged throughout the
year. Construct an Income Statement showing expected profit or loss for the next year.
Income Statement
£
Revenue £60 x 20,000 1,200,000
- Variable costs £40 x 20,000 (800,000)
Contribution £400,000
- Fixed costs £350,000
Net Profit £50,000
2. Calculate the following:
1
Ayaz, H. (2023). 4011ACC Seminar 9 Questions. Seminar conducted at the School of Economics, Finance
and Accounting. Coventry University.
, 5022ACC WEEK 7 SEMINAR
a. Contribution per unit =Sales price per unit – Variable cost per unit = £60 – (£18 +£15
+£7) = £20
b. Brea-even points (BEP) in units and sales revenue
BEP (units)= Fixed Cost / Contribution = £350,000 / £20 = 17,500 pairs of shoes
BEP (£) = BEP units x Selling price = 17,500 x £60 = £1,050,000
c. Expected pairs of shoes to be sold to achieve £150,000 target profit
Target Sale Unit = (Fixed costs + Target Profit) / Contribution per unit = (£350,000 +
£150,000) / £20 = 25,000 pairs of shoes
d. The margin of safety (MOS) in percentage %
Margin of Safety = (Expected sale – BEP)/Expected sale x100 = (20,000-17,500) /
20,000 x100 = 12.5%
Part 2
The sales manager believes that Despard Ltd will be able to sell 5,000 more shoes than the
original plan if the quality of the product is improved. To do this, the company would use better
quality, hence material cost would rise to £22 per unit. The increase in sales volume will also
increase annual fixed costs to £380,000. Other costs remain unchanged. The company does not
intend to increase its selling price so as to maintain its market share.
Variable Cost Cost per unit (£)
Direct Material 22
Direct Labour 15
Overheads (indirect production costs) 7
Sales Price (per unit) 60
Total Fixed Costs (per annum) 380,000
Expected Sales Units (per annum) 25,000 pairs
(20,000+5,000)
3. Based on the new information, calculate;
a. The revised profit
2
