5022ACC WEEK 7 SEMINAR
CVP topic :
Question 3 – Despard Ltd
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.
2. Calculate the following:
a. Contribution per unit
b. Brea-even points (BEP) in units and sales revenue
c. Expected pairs of shoes to be sold to achieve £150,000 target profit
d. The margin of safety (MOS) in percentage %
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.
3. Based on the new information, calculate;
a. The revised profit
CVP topic :
Question 3 – Despard Ltd
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.
2. Calculate the following:
a. Contribution per unit
b. Brea-even points (BEP) in units and sales revenue
c. Expected pairs of shoes to be sold to achieve £150,000 target profit
d. The margin of safety (MOS) in percentage %
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.
3. Based on the new information, calculate;
a. The revised profit
