Problem 3.1
Task 1
(a) the amount of York plc’s fixed costs:
Volume: Average cost per unit: Total costs:
40000 430 17200000
50000 388 19400000
Difference: 10000 2200000
Variable costs: 220
Variable costs at a production volume of 40000 (packs): 8800000
Fixed costs at a production volume of 40000 (packs): 8400000
(b) the profit of the company at its current sales volume of 65,000 packs:
Revenu = selling price per pack * current sales 27300000
Costs = fixed costs + variable costs 22700000
Profit = revenue - costs 4600000
(c) the break-even point in units:
Break-even point in units = Fixed costs / Contribution per unit 42000
Contribution per unit = selling price - unit variable costs 200
(d) the margin of safety expressed as a percentage:
Percentage margin of safety = Expected sales - breakeven sales / Expected sales * 100% 35.4
Task 2
(a) calculate the change in profits from accepting the order for 5,000 packs at £330:
Revenu = selling price per pack * current sales + 5000 * 330 28950000
Costs = fixed costs + variable cost per unit * (65000+5000) 23800000
Profit = revenu - costs 5150000
Change in profits = new revenue - old revenu 550000
(b) calculate the change in profits from accepting an order for 15,000 packs at £340:
Revenu = selling price per pack * current sales (-10000 because of the maximum capacity) + 15000 * 340
Costs = fixed costs + variable cost per unit * 70000
Profit = revenu - costs
Change in profits = new revenue - old revenu
(c) briefly explain and justify which proposal, if either, should be accepted:
The proposal of an export order for an extra 5,000 packs should be accepted, because in this way the company can make m
(d) identify two non-financial factors which should be taken into account before making a final decision.
If there is enough labour available, and it could damage their reputation when they start selling products for a lower price
Problem 3.2
(a) State whether, and why, absorption or variable costing would show a higher company profit for the period, an
As the sales are lower than the production for Product A, there are put units in the inventory. Absorption costing
would show a higher profit, because the full costs (the variable costs and the fixed costs) are absorbed into the cost
price of the product. This is the cost price that is used when valuing inventory. Thus, if you produce more than you
sell in a certain period, you are going to put goods in the inventory which you put as a revenue on your income
statement. The inventory is valued at a higher price under absorption costing compared to variable costing.
For Product B, production was lower than sales which means that there were units taken away from the invenotry.
Usually, absorption profits would be lower, but it does not outweigh the difference between sales and production of
Product A. There was put more into the inventory than there was taken out of it.
Task 1
(a) the amount of York plc’s fixed costs:
Volume: Average cost per unit: Total costs:
40000 430 17200000
50000 388 19400000
Difference: 10000 2200000
Variable costs: 220
Variable costs at a production volume of 40000 (packs): 8800000
Fixed costs at a production volume of 40000 (packs): 8400000
(b) the profit of the company at its current sales volume of 65,000 packs:
Revenu = selling price per pack * current sales 27300000
Costs = fixed costs + variable costs 22700000
Profit = revenue - costs 4600000
(c) the break-even point in units:
Break-even point in units = Fixed costs / Contribution per unit 42000
Contribution per unit = selling price - unit variable costs 200
(d) the margin of safety expressed as a percentage:
Percentage margin of safety = Expected sales - breakeven sales / Expected sales * 100% 35.4
Task 2
(a) calculate the change in profits from accepting the order for 5,000 packs at £330:
Revenu = selling price per pack * current sales + 5000 * 330 28950000
Costs = fixed costs + variable cost per unit * (65000+5000) 23800000
Profit = revenu - costs 5150000
Change in profits = new revenue - old revenu 550000
(b) calculate the change in profits from accepting an order for 15,000 packs at £340:
Revenu = selling price per pack * current sales (-10000 because of the maximum capacity) + 15000 * 340
Costs = fixed costs + variable cost per unit * 70000
Profit = revenu - costs
Change in profits = new revenue - old revenu
(c) briefly explain and justify which proposal, if either, should be accepted:
The proposal of an export order for an extra 5,000 packs should be accepted, because in this way the company can make m
(d) identify two non-financial factors which should be taken into account before making a final decision.
If there is enough labour available, and it could damage their reputation when they start selling products for a lower price
Problem 3.2
(a) State whether, and why, absorption or variable costing would show a higher company profit for the period, an
As the sales are lower than the production for Product A, there are put units in the inventory. Absorption costing
would show a higher profit, because the full costs (the variable costs and the fixed costs) are absorbed into the cost
price of the product. This is the cost price that is used when valuing inventory. Thus, if you produce more than you
sell in a certain period, you are going to put goods in the inventory which you put as a revenue on your income
statement. The inventory is valued at a higher price under absorption costing compared to variable costing.
For Product B, production was lower than sales which means that there were units taken away from the invenotry.
Usually, absorption profits would be lower, but it does not outweigh the difference between sales and production of
Product A. There was put more into the inventory than there was taken out of it.
