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B292 Management Accounting : Cost Volume Profit Relationship

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B292 Management Accounting

Question :

About TMA:

The TMA covers the management accounting concepts and practices in the businesses. It is intended to assess students’ understanding of one of the important concepts in management accounting which has emerged as an alternative to traditional costing methods. In recent years the nature of industrial production has fundamentally altered as it became more capital intensive and based on machine production, overheads tend to be more dominant and the international market became highly competitive. This TMA requires you to apply the course concepts. The TMA learning objectives are intended to:

  • Enhance student ability to understand the analysis of cost-volume-profit relationship.
  • To emphasize the importance of cash budgets to the company.
  • Assess students’ understanding of key learning points within units 2, 3 & 4.
  • Increase the students’ knowledge about the reality of the Managerial Accountingas a profession.
  • Develop students’ communication skills, such as memo writing, essay writing, analysis and presentation of material.
  • Develop the ability to understand and interact with the nature of the managerial accounting tools in reality.  

The TMA requires you to:

Review various study sessions beside the supplementary materials.

Conduct a simple information search using the internet.

Present your findings in not more than 2,000 words ± 10%.

You should use a Microsoft Office Word/excel and Times New Roman Font of 12 points.

You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.

Question 1: 

Breakeven analysis

Comtech Inc. manufactures Cell phones. Last year Comtech sold 20,000 phones at $100 each. Total costs amounted to $1,800,000 of which $800,000 were considered fixed.

In an attempt to improve its product, the company is considering replacing a component part that has a cost of $16 with a new and better part costing $26 per unit in the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $120,000 with a useful life of five years and a $20,000 salvage value. The company uses straight-line depreciation on all plant assets. (Ignore company tax.)

Required:

  1. Calculate in units, Innovation’s break-even point for last year. (10 marks)
  2. Calculate the number of units that the company would have had to sell in the last year to earn $ 200,000. Prove your answer. (10 marks)
  3. If Comtech increases the selling price by $20, and purchases the new part and the new machine, calculate the new contribution margin, the new fixed cost & the   number of units that the company will have to sell to make the same net income as last year. (20 marks)

Question 2: 

Budgeting for Hawthorn Manufacturing

Hawthorn Manufacturing needs to prepare a cash budget for December 2021. The cash balance at the beginning of December is $31,000. The actual sales for October and November and expected sales for December are:

Information

October ($)

November ($)

December ($)

Cash Sales

13,000

10,500

14,800

Sales on Account

40,000

60,000

80,000

Total Sales

53,000

70,500

98,800

Sales on account are collected over a three-month period in the following ratio:

10% in the month of sale,

70% in the month following sale

18% in the second month following sale

2% remaining are uncollectible.

Additional information includes:

(a) Purchases of inventory will total $60,000 for December; 20% will be paid for in December. Accounts payable from November’s inventory purchases is $38,000, all of which will be paid in December.

(b) Selling and administrative expenses are budgeted at $25,000 for December; of which $5,000 is for depreciation.

(c) Equipment costing $40,000 will be purchased for cash during December, and other miscellaneous cash expenses of $6,000 will be paid during December.

Required

Prepare the cash collections for the month of December and also a Cash Budget for December.  Show all workings clearly (25 marks)

Part B

Question 1 : Cost Concepts and Classifications

Adam has a garage that was constructed at a cost of $8,000 several years ago. He decided to use the garage in constructing and selling surfboards in his spare time. The garage will be depreciated over a 20-year life. Adam has determined that each surfboard will require $60 in wood. He will hire students to do most of the work and pay them $70 for each surfboard completed. He will rent tools at a cost of $400 per month. Adam has drawn money out of his savings account in the bank to provide the capital needed to get the operation going. The savings were earning interest at 6 percent annually. The advertising agency will handle advertising at a cost of $200 per month. Adam will hire students to sell the surfboard and pay a commission of $40 per board.

Required:

From the foregoing information/above text, identify all the examples you can of the following types of costs (a single item may be identified as more than one type of cost):

Cost Item

Your Answer

Variable cost (2 marks)

Fixed cost (2 marks)

Selling or administrative cost (2 marks)

Product cost (2 marks)

Manufacturing overhead cost (2 marks)

Sunk cost (2 marks)

Opportunity cost (2 marks)

Differential cost (between the alternatives of producing or not producing surfboard) ( 1 mark)

 

Question 2:

Most accounting tasks can be divided into financial accounting and managerial accounting. It is useful to describe the differences between these two aspects of accounting, since each one describes a distinctly different career path. Discuss how financial and managerial accounting interface. Is one more important than another? Discuss the rationale for your answer.

B292 Management Accounting

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