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A Level Accounting (9706)•9706/12/O/N/19
Question 28 from 9706/12/O/N/19

Explanation

Contribution Margin Profit Calculation Steps:

  • Last month's fixed costs = (1,000 units × 20/unit)−20/unit) - 20/unit)−12,000 profit = $8,000.
  • This month's units sold = 1,000 × 1.20 = 1,200.
  • This month's total contribution = 1,200 × (20×1.05)=1,200×20 × 1.05) = 1,200 × 20×1.05)=1,200×21 = $25,200.
  • This month's profit = 25,200−(25,200 - (25,200−(8,000 × 1.15) = 25,200−25,200 - 25,200−9,200 = $16,000. Why C is correct:
  • Matches the formula Profit = (units sold × contribution per unit) - total fixed costs, accounting for all given changes. Why the others are wrong:
  • A. $18,000: Overstates profit by double-counting volume and contribution increases without fixed cost adjustment.
  • B. $14,800: Understates by applying volume increase to old contribution per unit but new fixed costs.
  • D. $17,200: Ignores fixed cost increase, using last month's fixed costs with new contribution total. Final answer: C
Topic: Costs and cost behaviour

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