Manergerial Accounting Af 102 (2)

7/27/2019 Manergerial Accounting Af 102 (2)

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2. 1 Cost Volume Profit Analysis

1.1. Cost of Goods Manufactured ScheduleArmstrong Helmet

Company

Cost of Goods Manufactured Schedule

For the Month Ended December 31st, 2014

Work in process, Dec 1 $ -

Direct Materials

Raw Materials Inventory Dec 1 $ -

Raw Materials Purchases

$

70,000.00

Total raw materials available for use

$

70,000.00Less: Raw materials inventory, Dec 31 $ -

Direct Materials Used

$

70,000.00

Direct Labour

$

70,000.00

Manufacturing Overhead

Depreciation Factory Building

$

1,500.00

Insurance on Factory Building$

1,500.00

Miscellaneous Expenses Factory

$

1,000.00

Property Taxes Factory Building

$

400.00

Rent on Production Equipment

$

6,000.00

Utility Costs - Factory

$

900.00

Total Manufacturing Overhead

$

11,300.00

Total Manufacturing Costs $ 151,300.00

Total cost of work in process 0.00

Less: Work in Process, Dec

31 0

Cost of goods manufactured

$

151,300.00


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1.2. Variable and Fixed CostsItem

Variable

Costs Fixed Costs Total Costs

Raw Materials $70,000.00

Advertising for helmets $11,000

Administrative Salaries $15,500

Depreciation Factory Building $1,500

Depreciation Office Equipment $800

Insurance on Factory Building $1,500

Miscellaneous Expenses -

Factory $ 1,000.00

Office Supplies Expense $300

Professional Fees $500

Property Taxes

FactoryBuilding $400

Rent on Production Equipment $6,000

Research & Development $10,000

Sales Commission $40,000.00

Utility Costs - Factory $900

Wages Factory $70,000.00

$

181,000.00 $48,400

$

229,400.00

4) $15.13 per helmet

(Total Units Produced 10,000/ Total Manufacturing Cost 151,300)

5) Armstrong Helmet Company is probably using the Process costing. This is due to the fact that

the company is producing unique product in a massive quantity. This is compared to the

definition of the Process costing which states that; Process costing is used to apply cost to

similar products that are mass produced in a continuous fashion.

6) The Armstrong might use the different cost accounting system if :

a) It allocates overhead to multiple activity cost pools and assign the activity cost pool to

products or services by means of cost drivers or,

b) If costs are assign to each job or batch i.e. each job or batch has its own distinguish

characteristic.


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7) Variable cost per helmet is $18.10 (181000/10000)

8) Contribution margin $21.90 and contribution margin ratio 54.75%

9) $40Q = $18.10Q + $48400

$40 Q $18.10Q = $48400

$21.90Q = $48400

Q = 2210 units needed to break-even

Q = sales volume in units, $40 = selling price, $18.10 variable cost per unit, $48400 fixed cost per unit

2210 * $40 = $88400 break-even sales dollars


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2.2 Budgets

Armstrong Helmet Company

Sales Budget

For the Month Ending December 31stDecember

Expected unit sales 8000.00

Unit Selling Price $40.00

Total Sales $320,000.00


Production Budget

For the Month Ending December 31st 2013

Expected unit sales 8,000

Add: Desired ending finished goods 2,000

Total required units 10,000

Less Beg. Finished Goods Inventory 0

Required production units 10,000


Direct Materials Budget


Units to be produced 10,000

Direct materials per unit X 1kg

Total kilo's needed for production 10,000

Add: Desired ending direct materials 0

Total materials required 10,000

Less: Beg. Direct materials 0

Direct materials

purchased 10,000

Cost per pound $7

Total cost of direct materials purchases $70,000


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Direct Labour


Units to be produced 10,000

Direct labour time (hours) per unit x.35

Total received direct labour hours 3,500

Direct labour cost per

hour x20

Total direct labour cost 70,000

Armstrong Helmets Company

Selling and Administration Expense Budget

For the Year Ending December 31, 2013

Budgeted sales in units 8000

Variable Expenses

Sales commission 40,000

Total variable expenses 40,000

Fixed Expenses

Advertising 11,000

Administrative salaries 15,500

Depreciation - office equipment 800

Office suppliesexpenses 300

Professional fees 500

Research and

development 10,000

Property taxes - Factory building 400

Total fixed expenses 38,500

Total selling and administrative expenses 78,500


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Cash Budget

For the Year Ending December 31, 2013

Beginning cash balance $0

Add: Receipts

Collections from

customers $240,000

Total recceipts $240,000

Total available cash $240,000

Less: Disbursments

Direct Materials $52,500

Direct Labour $70,000

Manufacturing Overhead (less depreciation - $1500) $9,800

Selling and administrative expenses (less depreciation - $800) $77,700

Inccome tax expense $40,590 54675Purchase of equipment $720,000

Total disbursments $984,675

Excess (deficiency) of avaliable cash over cash dispursments -$744,675

Financing

Borrowings $774,675

Ending cash balance $30,000


Budgeted Income Statement

for the month ended 31, December 2013

Sales (8000 units @ $40) $320,000

Cost of Goods Sold (8000 units @ $15) $120,000

Gross Profit $200,000

Selling and Administration expense $78,500

Income before income tax expense $121,500

Income tax expense (45%) $54,675

Net income $66,825


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FLEXIBLE BUDGET

2.3 Incremental Analysis

Incremental AnalysisRetain Replace

Net Sales 6,000,000 6,600,000

Cost of goods sold 4,500,000 4,620,000

Gross Profit 1,500,000 1,980,000

Less operating expenses

Administrative (Old=180,000x5) (New= 180,000x1.1x5) 500000 565000


Selling Expense Budget Report (Flexible)

For the Month Ending December 31, 2013

Sales in units 8,000 10,000 1000

Variable Expenses

Sales commission ($4) $32,000 $40,000 $4000

Direct Material ($7) $56,000 $70,000 $7000Miscellaneous Expenses - Factory

($0.10) $80 $1,000 $100

Wages Factory ($7) $56,000 $70,000 $7000

Total variable expenses $144,080 $181,000 $18100

Fixed Expenses

Advertising for helmets $11,000 $11,000 $11,000

Administrative Salaries $15,500 $15,500 $15,500

Depreciation Factory Building $1,500 $1,500 $1,500

Depreciation Office Equipment $800 $800 $800

Insurance on Factory Building $1,500 $1,500 $1,500

Office Supplies Expense $300 $300 $300

Professional Fees $500 $500 $500

Property Taxes Factory Building $400 $400 $400

Rent on Production Equipment $6,000 $6,000 $6,000Research & Development $10,000 $10,000 $10,000

Utility Costs - Factory $900 $900 $900

Total Fixed expenses $48,400 $48,400 $48,400

Total Cost = VC+FC $192,480 $229,400 $66,500


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Selling Administrative (100,000x5=Old) (113000x5) 900,000 990,000

Purchase (New equipment) 150,000

Total expenses 1,400,000 1,705,000

Net Income (Gross profit-Total Expenses) 100,000 275,000

RECONMENDATIONSince the New Equipment will be Earning More profit of $275,000 then the old Equipment of $100,000 It

is therefore recommended for the Managing Director of the Navula Company to Replace the Old

Equipment with the New Equipment.

Documents

Manergerial Accounting Af 102 (2)