Question

Select one :
A. £304,000
B. £404,000
C. £352,800
D. £152,800

€8 As the accounting expert for a local firm of management consultants, you have been left with three scenarios to resolve for different clients. Scenario 1: West Ltd has the capacity to produce 6,000 waste paper bins per month, but is currently only operating at 70% efficiency. Annual fixed costs are £200,000 and the following current unit information is available: Direct material Direct labour £6 Selling price £26 Variable overhead What annual profit is generated at the current level of operation? £5

Answer 1

	CALCULATION OF CURRENT LEVEL OF PRODUCTION:
	Total Capacity of production (6,000 Units X 12 Month)	72000	Units
	Production is done at 70% efficiency (72,000 X 70%)	50400	Units
	CALCULATION OF CURRENT LEVEL OF OPERATION
	Production and sales (50,400 Units X 26) =	£   13,10,400
	Less: Production Cost:
	Direct Material (50,400Units X 8)	£     4,03,200
	Direct Labor ( 50,400 Units X 6)	£     3,02,400
	Variable Overhead (50,400 Units X 5)	£     2,52,000
	Gross Profit	£     3,52,800
	Less : Fixed Cost	£     2,00,000
	Net Income	£     1,52,800
	Answer = Option D = 152,800