MAC3701 ASSIGNMENT 2
FOR SEMESTER 1 2025
WRITE IN YOUR OWN WORDS TO AVOID PLAGIARISM!!
FEND TUTORIALS
,PART A
1. Calculation of Target Profit in Units:
The formula for calculating the target profit in units is:
Target Profit in Units=Target Profit+Fixed Costs/Contribution per Unit
From the budgeted figures, we know that:
Target profit = R28.5 million
Fixed Costs (including manufacturing overheads, selling and distribution costs,
administrative costs) = R10 million (selling & distribution costs) + R12.5 million
(administrative costs) = R22.5 million
Contribution per unit for SPump = R735
Contribution per unit for BPump = R1 535
The cost accountant calculated the target profit in units as follows:
Target Profit Units
=R12 500,000+R10,000,000/R735+R1,535
This is incorrect. The correct way to calculate the target profit in units is to add the
target profit (R28.5 million) to the total fixed costs (R22.5 million) and then divide by the
combined contribution per unit.
Correct Calculation of Target Profit in Units:
1. Total Target Profit and Fixed Costs:
Total Fixed Costs
=R22 500 000(R10 million selling and distribution+R12.5millionadministrative costs)
Target Profit and Fixed Costs=R28 500 000(target profit+R22 500 000)
2. Total Contribution per Unit:
Contribution per Unit
=Contribution for SPump+Contribution for BPump
=R735+R1 535=R2 270
3. Units Required for Target Profit:
Target Profit Units
, =R28 500 000+R22 500 000/R2 270
=R51 000 000/R2 270
≈22 466.96 units
Critical Evaluation of Target Profit Units Calculation:
The target profit units should be approximately 22,500 units rather than the
9,911 units calculated by the cost accountant.
The cost accountant has incorrectly combined the fixed costs and target profit,
and divided it by the sum of the unit contributions of both products, which isn't
accurate. Each product should have its own contribution per unit, and the total
contribution should be weighted based on the sales mix (which the cost
accountant didn’t account for in this calculation).
2. Sales Mix (SPump vs BPump):
The sales mix needs to be factored into the overall calculations. The target profit point
units for SPump and BPump should be based on the weighted contributions from both
products, as follows:
Total Units for Target Profit: 9,911 (rounded from the original calculation).
The cost accountant correctly calculated the sales mix, which is:
SPump Target Units=9 911×64%=6 343 units
BPump Target Units=9 911×36%=3 568 units
This approach seems correct as the cost accountant correctly distributed the target
units based on the sales mix of 60% SPump and 40% BPump, which aligns with the
production budget.
3. Selling Price and Prime Costs:
Selling Price:
o SPump: R2,500
o BPump: R4,500 These prices seem reasonable given the context, with
BPump priced higher due to its added features (high-pressure aluminium
air chamber).
Prime Costs (Direct Labour and Materials):
o SPump: 70% of the selling price = 0.70 × R2,500 = R1,750
o BPump: 70% of the selling price = 0.70 × R4,500 = R3,150
FOR SEMESTER 1 2025
WRITE IN YOUR OWN WORDS TO AVOID PLAGIARISM!!
FEND TUTORIALS
,PART A
1. Calculation of Target Profit in Units:
The formula for calculating the target profit in units is:
Target Profit in Units=Target Profit+Fixed Costs/Contribution per Unit
From the budgeted figures, we know that:
Target profit = R28.5 million
Fixed Costs (including manufacturing overheads, selling and distribution costs,
administrative costs) = R10 million (selling & distribution costs) + R12.5 million
(administrative costs) = R22.5 million
Contribution per unit for SPump = R735
Contribution per unit for BPump = R1 535
The cost accountant calculated the target profit in units as follows:
Target Profit Units
=R12 500,000+R10,000,000/R735+R1,535
This is incorrect. The correct way to calculate the target profit in units is to add the
target profit (R28.5 million) to the total fixed costs (R22.5 million) and then divide by the
combined contribution per unit.
Correct Calculation of Target Profit in Units:
1. Total Target Profit and Fixed Costs:
Total Fixed Costs
=R22 500 000(R10 million selling and distribution+R12.5millionadministrative costs)
Target Profit and Fixed Costs=R28 500 000(target profit+R22 500 000)
2. Total Contribution per Unit:
Contribution per Unit
=Contribution for SPump+Contribution for BPump
=R735+R1 535=R2 270
3. Units Required for Target Profit:
Target Profit Units
, =R28 500 000+R22 500 000/R2 270
=R51 000 000/R2 270
≈22 466.96 units
Critical Evaluation of Target Profit Units Calculation:
The target profit units should be approximately 22,500 units rather than the
9,911 units calculated by the cost accountant.
The cost accountant has incorrectly combined the fixed costs and target profit,
and divided it by the sum of the unit contributions of both products, which isn't
accurate. Each product should have its own contribution per unit, and the total
contribution should be weighted based on the sales mix (which the cost
accountant didn’t account for in this calculation).
2. Sales Mix (SPump vs BPump):
The sales mix needs to be factored into the overall calculations. The target profit point
units for SPump and BPump should be based on the weighted contributions from both
products, as follows:
Total Units for Target Profit: 9,911 (rounded from the original calculation).
The cost accountant correctly calculated the sales mix, which is:
SPump Target Units=9 911×64%=6 343 units
BPump Target Units=9 911×36%=3 568 units
This approach seems correct as the cost accountant correctly distributed the target
units based on the sales mix of 60% SPump and 40% BPump, which aligns with the
production budget.
3. Selling Price and Prime Costs:
Selling Price:
o SPump: R2,500
o BPump: R4,500 These prices seem reasonable given the context, with
BPump priced higher due to its added features (high-pressure aluminium
air chamber).
Prime Costs (Direct Labour and Materials):
o SPump: 70% of the selling price = 0.70 × R2,500 = R1,750
o BPump: 70% of the selling price = 0.70 × R4,500 = R3,150
