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portunity cost, and iii) a semi-variable cost in the above. b) Calculate Simon's i) break-even point ii) margin of safety (as a perce

portunity cost, and iii) a semi-variable cost in the above. b) Calculate Simon's i) break-even point ii) margin of safety (as a perce

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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a) Identify an example of

i) a sunk cost,

ii) an opportunity cost, and

iii) a semi-variable cost in the above.

b) Calculate Simon's

i) break-even point

ii) margin of safety (as a percentage) given anticipated annual sales of 4,800 units and c) his anticipated annual profit on sales of 4,800 units per annum

Part 3 Simon has invented a new component for the wave turbine industry, and is considering starting to trade from and including 1 June 2022. He has given you the following information. • Sales are forecast at 400 units per month. • Each unit will sell for £100 each. • Variable costs of manufacture are £60 each. • He has had the idea for the new component for several years, and in May 2022 he paid a firm of consultants £2,000 for a report on his new business. • He will resign from his existing job in order to run his business. He currently earns £34,000 per annum. • Fixed overheads of £2,000 per month are estimated, and include depreciation of £500 per month. Fixed overhead payments are payable in the month when they are incurred. A sales person will be employed at a monthly salary of £1,500 plus a commission of £5 for every item sold. The sales person's salary and commission is not included in any of the above. Required a) Identify an example of i) a sunk cost, ii) an opportunity cost, and iii) a semi-variable cost in the above. b) Calculate Simon's i) break-even point ii) margin of safety (as a percentage) given anticipated annual sales of 4,800 units and c) his anticipated annual profit on sales of 4,800 units per annum.
Transcribed Image Text:Part 3 Simon has invented a new component for the wave turbine industry, and is considering starting to trade from and including 1 June 2022. He has given you the following information. • Sales are forecast at 400 units per month. • Each unit will sell for £100 each. • Variable costs of manufacture are £60 each. • He has had the idea for the new component for several years, and in May 2022 he paid a firm of consultants £2,000 for a report on his new business. • He will resign from his existing job in order to run his business. He currently earns £34,000 per annum. • Fixed overheads of £2,000 per month are estimated, and include depreciation of £500 per month. Fixed overhead payments are payable in the month when they are incurred. A sales person will be employed at a monthly salary of £1,500 plus a commission of £5 for every item sold. The sales person's salary and commission is not included in any of the above. Required a) Identify an example of i) a sunk cost, ii) an opportunity cost, and iii) a semi-variable cost in the above. b) Calculate Simon's i) break-even point ii) margin of safety (as a percentage) given anticipated annual sales of 4,800 units and c) his anticipated annual profit on sales of 4,800 units per annum.
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