I have this question in in my study material and really do not understand it. Would somebody be able to explain it to me?
A company has a single product with a selling price of £12 per unit, which is calculated as variable cost per unit, plus 20%. At an output level of 5000 units it makes a loss of £8000.
The result is £18000.
In the book they calculate it as (5000 x 12 x 20)/120 = 10000+8000=18000
What I do not get is the way they calculate the percentages - why is the 20 and 120 used in that way. I have never seen it before.
Would you have a different way of calculating it to get to the same result?
thank you for coming to my rescue. Yes, it is the total fixed cost.
I still do not understand how they calculate it in the BPP book - those percentages. I have never seen it like that. Maybe they teach percentages differently in mainland Europe (I am not English).
If you could explain that I would be really very grateful.
The root of this question is actually equally applicable to financial accounting.
it's just a markup but they expect you to see it rather than telling you that it is as they want to ensure that people understand the difference between markups and margins.
Anyway, back to the question. it's just the way that you calculate mark ups. For example if you had intra group sales of $5.4m with a 50% markup and one third of the goods was still in inventory at the period end the calculation would be $5.4m/3*.5/1.5 ($600k).
This is one that you will use a lot in your studies as markups are almost always thrown into financial statement questions. Normally only worth 1 mark if anything in themselves but get it wrong and you will lose points on the balance sheet overall and possibly retained earnings, net assets, non controlling interests, etc. So potentially 4 or 5% of yor exam mark.
HTH,
Shaun.
P.S. Which paper are you doing? F2, F5 or F9. Are you only sitting the one in June or doing multiple papers.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Shaun,
Hello again. Preparing for 5,6,7 for June. Been brushing up on f2 because some of it is relevant to f5.
They have changed the syllabus quite a lot in the last year (since I have done f2). There is about 11 new chapters. Feel like I have to cover the gaps a bit so using f2.
Thank you for your help
Nothing like grabbing the bull by the horns there! Management Accounting, Financial Account and Tax in a single sitting...
Personally I thiunk that I might have gone with F8 (Audit) rather than F6 (Tax) as the knowledge required for Audit incorporates the entirety of the F7 sylabus so you can pretty much kill two birds with one stone there (Well, almost. There's also a lot of audit and ethics stuff to learn)... If you've not started on your F6 yet and not paid for the exam then it's still not too late to change.
For future reference though it's always worth doing the financial accounting and audit papers in the same sitting.
I'm going to be sitting P2 (international) in June so any help that you need with your F7 (or F8 if you go down that route) study just post on here or drop me a line at croxley.morris@virginmedia.com
All the best,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
