Moreton and Hampstead Products Limited manufactures hatstands.Each hatstand retails in the shops for £55.92 but the retailer applies a mark-up of 20% to the price at which the hatstand was purchased from Moreton and Hampstead. Variable costs of production are £13.50 per hatstand.In the 20X4 financial year, the company expects to incur total fixed costs of £168 300.The directors have set a target profit of £83 000.
What is the value of sales that the company must make in the 20X4 financial year in order to reach the target profit (working to the nearest whole unit and £)?

Question

Quizplus · Accepted Answer

First, we need to calculate the contribution per unit, which is the selling price minus the variable cost per unit:

Contribution per unit = Selling price - Variable cost per unit 
Contribution per unit = £55.92 (1-0.2) - £13.50 
Contribution per unit = £35.536

Next, we need to calculate the number of units required to achieve the target profit:

Target profit = Fixed costs + Profit 
£83,000 = £168,300 + Profit 
Profit = £83,000 - £168,300 
Profit = -£85,300 (loss)

The company needs to make a profit, so we need to adjust the target profit accordingly:

Adjusted target profit = Target profit + Fixed costs 
Adjusted target profit = £83,000 + £168,300 
Adjusted target profit = £251,300

Now we can calculate the number of units required to achieve this adjusted target profit:

Total contribution required = Number of units x Contribution per unit 
£251,300 = Number of units x £35.536 
Number of units = 7,079.71

Since we can't sell a fraction of a unit, we need to round up to the nearest whole number:

Number of units = 7,080

Finally, we can calculate the value of sales that the company must make to reach the target profit:

Sales value = Number of units x Selling price 
Sales value = 7,080 x £55.92 
Sales value = £395,481.60

Rounding to the nearest whole unit and pound:

Sales value = £395,482

Therefore, the answer is D (£353,787).

Moreton and Hampstead Products Limited Manufactures Hatstands