Q1：

Log Co has an operating gearing ratio of 33.33%.Its sales are currently\$100m and its operating profit is\$20m.Operating gearing is calculated by dividing fixed costs by variable costs.

What will its operating profit be its sales increases by 15%?

A\$27m

B\$26m

C\$23m

D\$21m

Q2：

A bank has developed a new type of account called the Gold Account.Development and advertising costs were\$50,000.At the start of each of the next four years,1000 customers are expected to open a Gold Account and to pay the bank\$300 each year that they use it.Of the 1,000 customers who open a Gold Account,500 are expected to close the account after one year and 500 after two years.The bank estimates it will cost\$400 per customer to administer the Gold Account in the customer’s first year reducing to\$50 per customer in the second year.

Ignoring the time value of money,what is the lifecycle profit per customer of Gold Account?

A\$8.33+

B\$25.00

C\$12.50

D\$16.67

The account runs for 4 years

Year 1 1000 new customers

Year 2 1000 new customers 500 from year 1

Year 3 1000 new customers 500 from year 2

Year 4 1000 new customers 500 from year 3

500 from year 4

Total 4000 2000

From the above,since customers are joining every year for the 4 years there will be a total of 4000 customers that will cost the bank\$400 per customer in the first year and 2000 customers in total that will cost\$50 per customer in the second year

Calculation of profit over the life cycle will be as follows:

First year 4000 x(\$300-\$400)

Second year 2000 x(\$300-\$50)

Less the development and advertising costs(\$50,000)

Total Profit\$50,000

Divided by 4000 customers

Lifecycle profit per customer\$12.50

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