PGBM01 - MBA Financial Management And Control (2015-16 Trm1 A)Pgbm 01 workshop 8 additional question solution

PGBM01 Financial Management & Control

Workshop 8 Additional Question

By

Andy Turton.

[email protected]

Additional Question

Alpha Beta Gamma

£,000 £,000 £,000

Variable Costs:

Materials (6) (4) (5)

Labour (9) (6) (12)

Expenses (3) (2) (2)

Total Variable Cost (18) (12) (19)

Sales Revenue 39 29 33

Contribution 21 17 14

Contribution per £ of labour 2.333 2.833 1.167

Order of profitability 2nd 1st 3rd

Additional Question (Cont.)

Since 50% of each budget ( therefore £13,500 of labour) is committed, only the remaining balance of £6,500 (£20,000 - £13,500) of labour is left uncommitted. This £6,500 should be utilised as follows:

£

Beta 3,000

Alpha 3,500

Total 6,500

Additional Question (Cont.)

Total Labour committed to each service and resultant profit as follows:

Alpha Beta Gamma Total

£ £ £ £

Labour

50% of Budget 4,500 3,000 6,000

Allocated Previously 3,500 3,000

Total 8,000 6,000 6,000 20,000

Contribution per £ of labour 2.333 2.833 1.167

Contribution per unit of

Service 18,664 16,998 7,002 42,664

Less Fixed Costs 33,000

Maximum Profit (after rounding) 9,664

Additional Question (Cont.) (b)

• Analyse the viability of selling more than £29,000 of the Beta service as this service generates the greatest amount of contribution.

• Drop the 50% budgeted commitment to each service.

• Sub-contract the labour intensive part of the work.

Any Questions??

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