AC5053
University of East London
UK
Calculate target cost and actual cost per patron and state Lagoon will achieve target operating income of 35% at £35 before any changes.
Particulars | Amount |
Number of patrons | 55000 |
Ticket cost | £35 |
Weekly revenue (Number of patrons*ticket cost) | £1925000 |
Target profit Margin (Weekly revenue* 35%) | £673750 |
Target weekly cost (Weekly revenue- target margin) | £1251250 |
Desired cost per patron (£1251250/55000) | £22.575 |
Activity Description | Cost Driver | Cost per Unit | Total costs |
Ticket Sales and verification | 55000 | £3.35 | £184250 |
Operating Attractions | 11340 | 11340 | £1020600 |
Litter patrol | 1750 hours | £20 | £35000 |
Total Weekly costs | £1239850 | ||
Cost per patron (£1239850/55000) | £22.4 | ||
Operating Profit (£1925000- £1239850) | £685150 |
Lagoon does meet the target operating income of 35% as the weekly revenue is higher than the total weekly costs of running an amusement park. The target of the lagoon to achieve 35% of revenues at £35 per ticket sold has accomplished as mention above.
Particulars | Amount |
Weekly revenue | £1925000 |
Target income @35% | £673750 |
Operating profit | £685150 |
Surplus | £11400 |
Determine operating profit after changes and state will lagoon meet its target operating income in pounds in above part a or not
Particulars | Amount |
Number of patrons | 55000 |
Ticket cost | £33 |
Weekly revenue (Number of patrons*ticket cost) | £1815000 |
Target profit Margin (Weekly revenue* 35%) | left;">£635250 |
Target weekly cost (Weekly revenue- target margin) | £1179750 |
Desired cost per patron (£1179750/55000) | £21.45 |
Activity Description | Cost Driver | Cost per Unit | Total costs |
Ticket Sales and verification | 55000 | £3.00 | £165000 |
Operating Attractions | 10340 | £90 | £930600 |
Litter patrol | 1400 hours | £20 | £28000 |
Total Weekly costs | £1123600 | ||
Cost per patron (£1123600/55000) | £20.42 | ||
Operating Profit (£1925000- £1239850) | £691400 |
After the ticket price reduced from £35 to £33, the still lagoon achieves its target of 35% of revenue as the operating profit is higher than the desired target income.
Target income accounts for £635250 and the operating profit that arises after changes are £691400.
Discuss the challenges encounter in meeting target costs at the lagoon and state the way to overcome the same
Management of Lagoon encountered some of the challenges in achieving the target cost are mentioned as below:
Competition seems a direct challenge for Lagoon amusement park to shift the interest of patrons towards its park but still, they managed to attract 55000 patrons every week.
To overcome the challenge of managing the number of visitors every week, lagoon reduces the ticket price of the amusement park from £35 to £33.
The increasing cost of park maintenance and other ancillary elements inflated the ticket price of the amusement park.
To deal with this issue, the lagoon reduces the indirect cost of selling and verifying tickets by 0.35, cut down 1000 attraction runs, and decreasing patrol hours by 20% to stabilize the profit and achieved the target income of 35%.
State lagoon achieve its requirement in part a or not and if not then how many lagoons need to decrease value engineering costs to meet the target.
Particulars | Amount |
Number of patrons | 55000 |
Ticket cost | £33 |
Weekly revenue (Number of patrons*ticket cost) | £1815000 |
Target profit Margin (Weekly revenue* 35%) | £635250 |
Target weekly cost (Weekly revenue- target margin) | £1179750 |
Activity Description | Cost Driver | Cost per Unit | Total costs |
Ticket Sales and verification | 55000 | £3.00 | £165000 |
Operating Attractions | 10340 | £90 | £930600 |
Litter patrol | 1400 hours | £20 | £28000 |
Total Weekly costs | £1123600 | ||
Cost per patron (£1123600/55000) | £20.42 | ||
Operating Profit (£1925000- £1239850) | £691400 | ||
Tax on energy (£3*10340) | (£31020) | ||
Operating profit after Tax | £660380 |
After the imposition of a carbon tax on energy consumption, the operating profit after tax amounts to £660380 that satisfies the requirement of Lagoon to achieve the 35% of the weekly revenue.
Calculate the number of units to produce by Wechsler for A130, B324, and C587
Particulars | A130 | B324 | C587 |
Selling Price | £252 | £168 | £210 |
Variable costs | |||
Direct Materials | £72 | £45 | £27 |
Labour and other costs | £84 | £81 | £120 |
Total Variable costs | £156 | £126 | £147 |
Contribution (Sales-Variable costs) | £96 | £42 | £63 |
Direct material per unit of Pounds | 8lb | 5lb | 3lb |
Contribution margin per unit (Contribution/DM per unit of Pounds) | £12(£96/8) | £8.40(£42/5) | £21(£63/3) |
Wechsler needs to produce a minimum of 200 units of each product. It is essential to determine the minimum requirements.
Particulars | A130 | B324 | C587 | Total |
Minimum production units | 200 | 200 | 200 | |
Quantity of brac per unit | 8 | 5 | 3 | |
Pound need to produce the minimum units | 1600lb | 1000lb | 600lb | 3200lb |
Maximum 5000 pounds held available every month with Wechsler, now 1800 pounds is left from 5000 by deducting the minimum units of pounds(5000-3200). C587 has the highest contribution margin of £21 per lb however 1800 lb is utilized in producing C587.
Per unit of C587 requires 3 pounds of brac that means 600 units of C587 require a total of 1800 pounds of brac in the manufacturing of the product.
Following a combination of units yields the highest contribution margin considering the 5000-pound constraint of Brac is:
Particulars | Units |
A130 | 200 (minimum) |
B324 | 200 (minimum) |
C587 | 800 (200 units minimum and 600 units additional) |
Wechsler needs to produce the minimum units of 200 for A130 and B324 products and 800 units for C587. Reason of additional 600 units determined above as out of 5000 pounds after deducting the Direct material required for the product, remaining 1800 pounds utilized for C587 as the contribution margin of C587 is highest per pound. b) Determine the maximum amount Wechsler would intend to pay for 1200 pounds of Brac
Determine the maximum amount Wechsler would intend to pay for 1200 pounds of Brac
Particulars | Amount |
Selling price | £210 |
Labor and other costs | £120 |
Contribution Margin | £90 |
DM quantity of Brac | 3 |
DM cost per pound that Wechsler willing to pay | £30 |
Wechsler has a shortage of materials over the demand in the market. Wechsler is willing to pay £21 per pound for C587 product for an additional 1200 pounds.
Wechsler would willing to pay £30 (£9 as cost per product and £21 as contribution margin) for another 1200 pounds. Per product of C587 requires 3 pounds that implies producing 400 extra units (1200 pounds/3).
The maximum amount payable by Wechsler gets different in case of demand arises for products other than C587.
After C587, the highest contribution margin generates by A130 that states that Wechsler would willing to pay £12 per pound. Maximum pay for an additional pound accounts to £21(£9+£12).
Lastly, if demand arises for a third product namely B324, then Wechsler would willing to pay £8.40 per pound the maximum amount per pound would be £17.40(£8.40+£9).
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