Accounting for Managers: Interpreting accounting information for decision-making

416 ACCOUNTING FOR MANAGERS

8.11
Selling price 20
Direct materials 8
Direct labour 5 13

Contribution margin 7

Breakeven=

7 , 000 + 5 , 000

7

=

12 , 000

7

= 1 , 714

8.12
See Table A2.6.
The maximum contribution is at a selling price of £28. Note that this is not necessarily
the highest sales revenue. The highest contribution will also be the highest profit because
the same amount of fixed costs are deducted from each level of activity (within the
relevant range).

8.13
Direct labour costs 25.00
Variable costs 4.00
Fixed costs £250,000/20,000 12.50
Target return (750,000*25%)/20,000 9.38

Price 50.88

8.14
See Table A2.7.
Contribution maximized at £135 (80 rooms). This is an occupancy rate of 67% (80/120).

Table A2.6

Price VC Contribution p.u. Quantity Total contribution

26 15 11 1,075 11,825

27 15 12 1,000 12,000

28 15 13 925 12,025

29 15 14 850 11,900

30 15 15 775 11,625

Table A2.7

Number of

rooms sold

Price per room

per night

Revenue Variable costs

@ £25

Contribution

120 90 10,800 3,000 £7, 800

100 105 10,500 2,500 £8, 000

80 135 10,800 2,000 £8, 800

60 155 9,300 1,500 £7, 800

50 175 8,750 1,250 £7, 500