Q3. Last week, as part of the planning round, Tansey Ltd prepared the forecasts below for a range of potential levels of activity in the coming month. Due to storage constraints, the company does not carry inventory of finished goods and all units produced in a month are sold in the same month. Sales volume: units 10,000 Revenue (£) 126,000 90,000 Total cost (£) Profit (£) 36,000 11,000 138,600 95,000 43,600 12,000 151,200 100,000 51,200 Following scrutiny of the forecasts by the budget committee, it was agreed that the most likely activity level would be 10,000 units and so this was the figure on which further detailed operational plans were based. Today, an email has been sent by Mr Grey, the Sales Director, reporting that unfortunately it was now clear that only 7,500 units would be sold in the month. He went on to say, "Demand being down by 25% is of course a blow, but a profit of £27,000 next month would still be a respectable result." Required: a. Comment on Mr Grey's statement, fully discussing any misconceptions which it implies and recomputing the profit expected from 7.500 units.
Q3. Last week, as part of the planning round, Tansey Ltd prepared the forecasts below for a range of potential levels of activity in the coming month. Due to storage constraints, the company does not carry inventory of finished goods and all units produced in a month are sold in the same month. Sales volume: units 10,000 Revenue (£) 126,000 90,000 Total cost (£) Profit (£) 36,000 11,000 138,600 95,000 43,600 12,000 151,200 100,000 51,200 Following scrutiny of the forecasts by the budget committee, it was agreed that the most likely activity level would be 10,000 units and so this was the figure on which further detailed operational plans were based. Today, an email has been sent by Mr Grey, the Sales Director, reporting that unfortunately it was now clear that only 7,500 units would be sold in the month. He went on to say, "Demand being down by 25% is of course a blow, but a profit of £27,000 next month would still be a respectable result." Required: a. Comment on Mr Grey's statement, fully discussing any misconceptions which it implies and recomputing the profit expected from 7.500 units.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Q3.
Last week, as part of the planning round, Tansey Ltd prepared the forecasts below
for a range of potential levels of activity in the coming month. Due to storage
constraints, the company does not carry inventory of finished goods and all units
produced in a month are sold in the same month.
Sales volume: units 10,000
Revenue (£)
126,000
90,000
Total cost (£)
Profit (£)
36,000
11,000
138,600
95,000
43,600
12,000
151,200
100,000
51,200
Following scrutiny of the forecasts by the budget committee, it was agreed that the
most likely activity level would be 10,000 units and so this was the figure on which
further detailed operational plans were based.
Today, an email has been sent by Mr Grey, the Sales Director, reporting that
unfortunately it was now clear that only 7,500 units would be sold in the month. He
went on to say, "Demand being down by 25% is of course a blow, but a profit of
£27,000 next month would still be a respectable result."
Required:
a. Comment on Mr Grey's statement, fully discussing any misconceptions which
it implies and recomputing the profit expected from 7,500 units.
10
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