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Accounts

The document discusses different scenarios to help Cork Coaching achieve a target monthly profit of £30,000. Scenario 1 calculates the break-even point in hours and units. Scenario 2 shows that increasing prices by 10% or hours by 500 will not reach the profit goal due to high variable costs. Scenario 3 determines that hiring a trainer at a cost of £7,500 and increasing hours to 1500 will allow Cork Coaching to make the target profit of £33,333 per month.

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Rubab Kanwal
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47 views

Accounts

The document discusses different scenarios to help Cork Coaching achieve a target monthly profit of £30,000. Scenario 1 calculates the break-even point in hours and units. Scenario 2 shows that increasing prices by 10% or hours by 500 will not reach the profit goal due to high variable costs. Scenario 3 determines that hiring a trainer at a cost of £7,500 and increasing hours to 1500 will allow Cork Coaching to make the target profit of £33,333 per month.

Uploaded by

Rubab Kanwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Scenario 1:

a.

Contribution per hour=Net Sales – Total Variable Cost

¿ £ 45−£ 20

¿ £ 25

Break−even=¿ Cost /Contribution per hour … … … …(eq . 1)

As the contribution is a per hour rate so we will also convert fixed cost in per hour

rate. Fixed cost is given in yearly rate so ,first of all we will divide it by 12 as a year

has 12 months to convert it in per month rate.

¿ Cost per Month=£ 80,000/12

¿ £ 6,667 per month.

Now we have to convert this per month rate into per hour rate. One month has 30

days and 1 day has 24 hours and so, to get per hour rate we will multiply 30*24=720.

Now divide this 720 with the fixed cost per month to fixed cost per hour.

¿ Cost per Hour=£ 6,667 /720

¿ £ 9.26 per hour

Now put the values in equation 1

£ 9.26
Break−even∈hours=
£ 25

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¿ £ 0.37

FixedCost
Break−even∈units= … … … … (eq 2)
Contribution Margin per unit

Contribution per month=25∗1000=£ 25000

¿ cost per month=£ 80,000/12

¿ £ 6,667

Now put the above in equation 2

£ 6667
Break−even∈units=
£ 25000

¿ £ 0.266

b.

Price per hour is £45 and a total hour per month is 1000.

Sales=Price× No. of quantity

¿ £ 45 × 1000

¿ £ 45000

Variable cost per hour is 20

Variable cost =£ 20× 1000

¿ £ 20,000

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Profit Margin=Sales−Variable cost – ¿ cost

¿ £ 45,000−£ 20,000−£ 6,667

¿ £ 18,333

No, it is not possible for CC to achieve the proposed profit of £30,000 per month as

the profit margin we calculated is £18,333 because there variable cost is too high. If

they want to earn the profit of £30.000, they should control the variable cost.

c.

10 % of £ 45=£ 4.5

New sales rate=£ 4.5+ £ 45=£ 49.5

New Sales=49.5∗1000

¿ £ 49,500

New profit margin=Sales – Variable Cost – ¿ Cost

¿ £ 49,500 – £ 20,000 – £ 6,667

¿ £ 22,833

If we increase 10% charge in hourly rate even then Cork Coaching (CC) cannot

make the profit of £30,000.

d.

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If the hour’s capacity is increased by 500 and old hour’s capacity is 1000 so the new

hour’s capacity is now (1000+500=1500)

Cost of trainer =£ 5× 1,500

¿ £ 7,500

Sales are again calculated on the basis of new capacity of hours that is 1500.

Sales=Price× No. of quantity

¿ £ 45∗1500

¿ £ 67,500

Now we will calculate the profit as the sales is altered.

Profit=Sales – Variable cost – ¿ cost – Trainer cost

¿ £ 67,500 – £ 20,000 – £ 6,667 – £ 7,500

¿ £ 33,333

Conclusion:

After hiring the trainer, we will bear the cost of the trainer but we will achieve the

target profit. Trainer cost is measured at full capacity, this is the maximum cost of the

trainer that we have to bear and we reach the target profit. So, it is recommended

that CC should hire the trainer.

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