ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
Kestrel Ltd has a budget of 20,000 units at a selling price of $15 per unit. Variable cost is $9 per unit and fixed costs are $90,000. The budget committee wants a budgeted profit of $50,000 so that a lender's covenant is met, and the selling price and costs cannot change. What sales volume is needed?
Kestrel needs 23,333 units. Contribution is $6 per unit, and required contribution is fixed costs of $90,000 plus target profit of $50,000, which is $140,000. Dividing $140,000 by $6 gives about 23,333 units.
- A23,333 unitsCorrect
- B15,000 units
- C20,000 units
- D25,000 units
Explanation
Contribution per unit = 15 - 9 = $6. Required contribution = 90,000 + 50,000 = $140,000. Volume = 140,000 / 6 = 23,333 units. Check: 23,333 x 6 = 140,000 less 90,000 = 50,000. The 15,000 option wrongly uses 90,000 / 6 (break-even), and 25,000 is not supported by the data.
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