Analysis of change in profit arising from changes in volume and production methods plus sales revenue required to achieve a desired profit A company has the following summary performance over two accounting periods:

In period 2 selling prices were 5% higher than in period 1 and cost inflation (affecting both variable and fixed costs) was also 5%.
At the start of period 2 production methods were reorganized. This was the only other factor affecting costs between the two periods (apart from inflation and volume).
Required:

(a) Calculate the percentage increase in sales volume in period 2 compared with period 1.
(2 marks)

(b) Calculate the increase in net profit in period 2 compared with period 1, due to:
(i) volume (ii) reorganization of production methods.
(Calculations should be done at year 1 prices.) (6 marks)

(c) Calculate the sales (to the nearest £000) that were required in period 2 in order to achieve the same net profit as period 1. (3 marks)

(d) State, and explain, the formula for the calculation of the break-even sales revenue for a period (figures are not required). (3 marks)
(Total 14 marks)
ACCA Foundation Paper 3

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Period 1 Period 2 (000) (000) Sales 902.0 1108.1 Variable costs 360.8 398.9 Contribution 541.2 709.2 Fixed costs 490.5 549.0 Net profit 50.7 160.2