Total Sales = Sales for WTC100 + Sales for WTC200
= +
=
Now we will need to calculate the Total Costs which will be Shown below:
Total Costs = £427,000 + £9,000 + £25,000 + £10,000 + £15,000 + £50,000 + £900,000
+ £600,000 + £70,000 + £30,000
= £2,136,000
To calculate the total profit Eq.1 will be used:
(b) Produce three tables listing (i) the fixed costs (in £ per year) for the Company, (ii) the variable costs for the WTC100 and (iii) the variable costs for the WTC200. Hence find the total variable cost per unit for the WTC100 and the WTC200.
i)
The fixed Costs (in £ per year) for the Company is shown in the Table 1
Table 1
ii)
The variable Costs for WTC100 (in £ per year) is Shown in Table 2
Table 2
iii)
The variable Costs for WTC200 (in £ per year) is Shown in Table 3
Table 3
Now we will find the total variable cost per unit for the WTC100 and the WTC200.
Variable cost per unit for WTC100 = £970,000 ÷ 52
= £18,653.85 per week
Number of WTC100 sold in a week= 5000 ÷ 52 = 96
Cost per unit = £18654 ÷ 96
= £194.31
Variable cost per unit for WTC200 = £600,000 ÷ 52
= £11,538 per week
Number of WTC200 sold in a week= 3000 ÷ 52 = 57
Cost per unit = £11538 ÷ 57
= £202.42
(c) The firm's policy is to allocate its fixed costs in proportion to the budgeted sales revenue of each product. So what is the total of fixed costs assigned to the WTC100 and what fixed costs are assigned to the WTC200?
The firms fixed costs for 2010 are £536,000
WTC100 sales are £1,750,000, WTC200 sales are £1,440,000 and Total Sales are £3,190,000
Proportion ratio for each TV is shown below:
WTC100 = £1,750,000 ÷ £3,190,000 = 0.55
WTC200 = £1,440,00 ÷ £3,190,000 = 0.45
Now we need to find the fixed costs assigned to each TV in proportion to the budgeted sales revenue.
WTC100 = £536,000 × 0.5 = £294,800
WTC200 = £536,000 × 0.45 = £241,200
(d) On the basis of (c) above, find the breakeven quantities for the WTC100 and the WTC200.
In order to find the break even quantities we will need to use the equation below.
Eq.2
CF is the Fixed Costs, S is the Selling Price and Cv = Variable Cost
The breakeven quantity will be calculated using Eq.2 for both the TV’s
WTC100:
For the company to get to the breakeven point for the WTC100 they will need to sell 1894 units.
WTC200:
For the company to get to the breakeven point for the WTC100 they will need to sell 869 units.
(e) On the basis of (c) above, what percentage of the annual profit is attributed to the WTC100?
In order to find the percentage of the annual profit is attributed to the WTC100, the total cost will need to be calculated for the WTC100.
WTC100:
Total Costs = Variable Costs + Fixed Costs
= £970,000 + £294,800
= £1,264,800
To find out the profit made from WTC100, the total costs will need to be deducted from the revenue
Total sales = £1,750,000
Profit = £1,750,000 - £1,264,800
= £485,200
Now the percentage of profit which is attributed to WTC100
= 46.13%
So, 46.13% of the annual profit is attributed to the WTC100.
(f) Calculate what effect the implementation of the WTC100 production group Manager's proposal would have on the percentage of profit seen to be generated by his group. What reasons are there for accepting his argument?
So, for The Company the total fixed costs for the year 2010 are £536,000.
If we want to work out the salary for the 5 people then we do the following,
Salary per worker = (WTC100 workers / Total workers) x Total Fixed Costs
= (5 / 22) x £536,000
= £121,818.18 is the total salary for 5 workers
Now, we need to do the following,
= (WTC100 Sales) – (WTC100 Salary + Total Variable Costs)
= (£1,750,000) – ( £121,818 + £970,000)
= £658,182
Lastly, to find the percentage of profit we do the following,
Percentage = (£658,182) / (£1,054,000) x 100
= 62.45%
So, the percentage of profit generated by his group is 62.45%.
The reasons for accepting his argument is that by allocating the fixed costs in proportion to the manpower directly involved in production, the overall percentage of profit for WTC100 increases around 15-20%.
(e) On the basis of (c) above, what percentage of the annual profit is attributed to the WTC100?
To find the percentage of the annual profit which is attributed to the WTC100, first we have to get the total costs assigned to WTC100.
This means we have to do the following,
Total WTC100 Costs = Variable Costs + Fixed Costs
= £970,000 + £293,728
= £1,263,728
If we want to find out the profit made from WTC100, we do the following,
Total Sales from WTC100 = £1,750,000
Then we do the following,
Profit made by WTC100 = £1,750,000 - £1,263,728
= £486,272
Now we need to find the profit in terms of percentage of the total profit made by The Company, so to do this we know that the total profit made is £1,054,000 and the we do the following,
Percentage of Profit = (Profit made by WTC100 / Profit of The Company) x 100
= 46.13%
So, 46.13% of the annual profit is attributed to the WTC100.
(f) Calculate what effect the implementation of the WTC100 production group Manager's proposal would have on the percentage of profit seen to be generated by his group. What reasons are there for accepting his argument?
So, for The Company the total fixed costs for the year 2010 are £536,000.
If we want to work out the salary for the 5 people then we do the following,
Salary per worker = (WTC100 workers / Total workers) x Total Fixed Costs
= (5 / 22) x £536,000
= £121,818.18 is the total salary for 5 workers
Now, we need to do the following,
= (WTC100 Sales) – (WTC100 Salary + Total Variable Costs)
= (£1,750,000) – ( £121,818 + £970,000)
= £658,182
Lastly, to find the percentage of profit we do the following,
Percentage = (£658,182) / (£1,054,000) x 100
= 62.45%
So, the percentage of profit generated by his group is 62.45%.
The reasons for accepting his argument is that by allocating the fixed costs in proportion to the manpower directly involved in production, the overall percentage of profit for WTC100 increases around 15-20%.
