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Cost volume profit analysis - EX3.1
Transcript of Cost volume profit analysis - EX3.1
The management of a business is concerned about its inability to obtain enough fully trained labour to enable it to meet its present budget projection.
Mix and Match
By: Karen Bendicio
B) What steps could the business take in an attempt to improve profitability, in terms of labour shortage
- The amount of labour likely to be available amount to $20,000.
- All of the variable labour is paid t the same hourly rate.
- Prepare a statement of plans, ensuring that at least 50 per cent of the budgeted sales revenues are achieved for each service and the balance of labour is used to produce the greatest profit.
A) Prepare the statement showing the greatest profit available from the limited amount of skilled labour available
Calculate Contribution Margin per unit (service)
Formula: Sales Revenue - Variable cost = Contribution Margin
Calculate the Contribution Margin per Limited Factor
A shortage of any factor of production or a scarce resource
Limiting Factor: Amount of skilled labour available.
What is a limited factor?
Formula: Contribution Margin\ Limiting Factor
- Negotiate wages with existing workers
- Increase the price of the service
- Prove training to workers
- Improve efficiency of labour
Rank According to Highest Contribution Margin
Allocate Limiting Factor Based on Priority
Statement of Plan
By: Karen Bendicio, Georgina Garcia