Z plc operates a single retail outlet selling direct to the public. Profit statements for August and September are as follows:

Required:

(a) Use the high- and low-points technique to identify the behaviour of:
(i) cost of sales;
(ii) selling and distribution costs;
(iii) administration costs. (4 marks)

(b) Draw a contribution break-even chart and identify the monthly break-even sales value and area of contribution. (10 marks)

(c) Assuming a margin of safety equal to 30%
of the break-even value, calculate Z plc’s annual profit. (2 marks)

(d) Z ple is now considering opening another retail outlet selling the same products. Z plc plans to use the same profit margins in both outlets and has estimated that the specific fixed costs of the second outlet will be £100 000 per annum.

Z plc also expects that 10% of its annual sales from its existing outlet would transfer to this second outlet if it were to be opened.

Calculate the annual value of sales required from the new outlet in order to achieve the same annual profit as previously obtained from the single outlet.

(e) Briefly describe the cost accounting requirements of organizations of this type.LO1

Transcribed Image Text:

August September Sales 80 000 90 000 Cost of sales 50 000 55 000 Gross profit 30000 35000 Less: Selling and distribution 8000 9000 Administration 15000 15000 Net profit 7000 11000