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# Copy of :)

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by

## Maricollin Ramirez

on 15 October 2012

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#### Transcript of Copy of :)

A. the sales price needed to earn the target profit, using the information compiled by the
budget committee Case Facts Answers and Computations Requirements Hardhat Limited (cc) photo by Metro Centric on Flickr (cc) photo by Franco Folini on Flickr Projected Income Statement 2000/2001 Composition of Production Cost Write a report to the Board of Hardhat Ltd setting out the financial effects of the various proposals and make recommendations as to what price Hardhat should charge next year and in the longer run. Requirement A Requirement B 2001/2002 Budget Changes
and Target Profit Capacity Information B. the number of units that would have to be sold at the old price to meet the target profit, and whether this seems feasible C. what the profit would be if the sales price calculated in (a) were adopted, but sales volume only rose by 10%, or at best 20%. D. any other factors you think should be taken into account when making decisions about the price to be charged next year. Requirement C Requirement D 5+7= (cc) image by anemoneprojectors on Flickr Hardhat Ltd: Projected Income Statement 2000/2001

(£000s) (£000s)
Sales (100 000 units) £10,000.00
Cost of goods sold (6,000.00)
Gross profit 4,000.00
Selling expenses (1,500.00)
Administrative expenses (1,000.00) (2,500.00)
Net profit before tax £1,500.00 Composition of Production Cost

Ratio:
3 : 2 : 1
Materials : Direct Labour : Production Overhead Direct Labour
= £6000000 * (2/6)
= £2000000
** £20 per unit Materials
= £6000000 * (3/6)
= £3000000
** £30 per unit Production Overhead
= £6000000 * (1/6)
= £1000000
Fixed = £40000
Variable = £960000
** £9.6 per unit 2001/2002 Budget Changes

Number of units sold
Unit cost of materials
Direct labour cost per unit
Variable indirect cost per unit
Indirect fixed costs
Selling expenses

Target Profit

Target Profit before Tax for 2001/2002
= £2 000 000

30%
20%
5%
10%
5%
8%
6% Capacity

Plant's Maximum Capacity
= 150000 units

Extra Units that can be Sold
@ best = 20000 units
@ base = 10000 units Direct Labour
= £20
= £20 * 1.05
= £21 per unit Materials
= £30
= £30 * 1.2
= £36 per unit Production Overhead
Fixed
= £40000
= £40000 * 1.05
= £42000 Adjusted Budget for 2001/2002 Production Overhead
Variable
= £9.6
= £9.6* 1.10
= £10.56 per unit Admin Expenses
= £1000000
= £1000000 * 1.06
= £1060000 Selling Expenses
= £1500000
= £1500000 * 1.08
= £1620000

** 1620k - 1500k = 120k
** 120k/(130k-100k) = 4 per unit Number of Units Sold
= 100000 units
= 100000 * 1.30
= 130000 units Hardhat Ltd: Budget Income Statement 2001/2002

(£000s) (£000s)
Sales (130 000 units @ ?) £13,504.80
Cost of goods sold (8,824.80)
Gross profit 4,680.00
Selling expenses (1,620.00)
Administrative expenses (1,060.00) (2,680.00)
Target profit before tax £2,000.00

** Selling price per unit to meet target profit
= £13,504,800 / 130000 units
= £103.88 per unit **Considering the budget
( x = number of units needed)
£100x - 36x - 21x - 9.6x - 4 (x-100000) - 1500000 - 1060000 - 42000 = £2000000
£100x - 36x - 21x - 9.6x - 4x + 400000 - 1500000 - 1060000 - 42000 = £2000000
£100x - 36x - 21x - 9.6x - 4x = £2000000 - 400000 + 1500000 + 1060000 + 42000
£28.44x= £4202000
x = 147749.6784 units
Number of units needed = 147750 units

Thus, taking into account the plant's capacity, producing 147750 units is feasible; however, the 147750 units cannot be sold as regards to Mark Catchall's statement regarding the number of units that the market can still afford to buy. Hardhat Ltd: Budget Income Statement 2001/2002

** sales volume only rose by 10%

Sales (110 000 units @ 103.88) £11 426 800
Cost of goods sold (7 473 600)
Gross profit £3 953 200
Selling expenses (1 540 000)
Administrative expenses (1 060 000) (2 600 000)
Target profit before tax £1 353 200 Cost of Goods Sold

(£000s)
Materials (130000 units @ £36/unit) £4680
Direct Labour (130000 units @ £21/unit) 2730
Variable (130000 units @ £10.56/unit) 1372.8
Fixed 42
Total £8824.8 Cost of Goods Sold

(£000s)
Materials (110000 units @ £36/unit) £3960
Direct Labour (110000 units @ £21/unit) 2310
Variable (110000 units @ £10.56/unit) 1161.6
Fixed 42
Total £7473.6 Hardhat Ltd: Budget Income Statement 2001/2002

** sales volume rose by 20%

Sales (120 000 units @ 103.88) £12 465 600
Cost of goods sold (8 149 200)
Gross profit £4 316 400
Selling expenses (1 580 000)
Administrative expenses (1 060 000) (2 640 000)
Target profit before tax £1 676 400 Cost of Goods Sold

(£000s)
Materials (120000 units @ £36/unit) £4320
Direct Labour (120000 units @ £21/unit) 2520