Intermediate: Analysis of change in profit arising from changes in volume and production methods plus sales revenue
Question:
Intermediate: 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 perfor¬ mance 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 affect¬ ing 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 calcu¬ lation of the break-even sales revenue for a period (figures are not required).LO1
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