
Post by Coffeebeans on Apr 29, 2015 21:43:22 GMT
Hi there I have just started studying CIMA a few days ago. I've got the kaplan study materials and I'm currently on chapter 7 but I have a question about chapter 3 (overhead analysis  profit margin). I'm not sure if others have the same study material (or maybe some higher level students can help me out!) so here it is: WP Ltd manufactures product A. Data for A are are follows:
Material cost $7 Labour cost $18 Labour hours 2 Production overhead absorption rate $6 per direct hour Markup for nonproduction costs 5% of total production cost
WP Ltd requires 15% return on sales revenue from all products. Calculate the selling price for product A, to the nearest cent.
The solution given is:
(shortened) the full cost is calculated to $38.85
Then the profit markup is added by (15/85* x $38.85) so the selling price is $45.71
It says *Always read the question data carefully. The 15% required return is expressed as a percentage of the sales revenue, not as a percentage of the cost. I haven't had any problems so far but this one thing is bugging me! I just don't understand why the 15 (percent) was divided by 85? Where did the 85 come from? Maybe I'm just having a pregnancy brain moment.. please help! Thank you in advance!



Post by atr1990 on Apr 30, 2015 9:13:31 GMT
Hi effzed, of the total selling price/sales revenue which is 45.71 (100%), 15% is profit and 85% is the full cost.
That's where the 85 comes from.
It's not 15/100 because the question asks for return on "sales" revenue not "cost"



Post by on Aug 12, 2016 12:59:54 GMT
Can someone help me please,
I have a question which says:
A project requires an initial investment of $19,000. The company has a cost of capital of 10%. The following cash flows have been estimated for the life of the project.
Year Cashflow 1 4,000 2 8,000 3 7,000 4 5,000
Calculate the IRR of the project and recommend whether the project should be undertaken.
Why is the other bit off the IRR calculated at 5%?

