Project Report: Accounting case study

Running Head: Accounting case study
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Project Report: Accounting case study

Accounting case study
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CVP Analysis
To: Myrna Snowflake (CFO)
From: Andrew (CVP analyst)
Date: 1st Feb 2019
Sir,
On the basis of our discussion on the cost volume profit analysis, a study has been performed
on your previous year financial activities as well as the various suggestions from the
production manager, quality control manager and sales managers have been studied to
recognize that how the break even sales (units) of the company could be lower as well as net
profit level could be improved.
The current year data depicts that the net profit of the company was $ 6,996,000 and the
break even units and break even amount of the company was 3,16,302 units and $
11,386,861. The sales of the company were bit higher than the BEP sales of the company.
Further, the suggestion of product manager has taken into concern and it has been found that
the few changes in the quality will improve the sales level as well as will reduce the material
expenses of the business. It explains that the profit of the company would be $ 7, 557,600 and
the break even units and break even amount of the company would be 329114 units and $
11,354,430 which is better than the previous year performance however, and it will affect the
quality of the products (Rose & Hudgins, 2012).
Moreover, the quality manager and sales manager’s suggestions have been studied and it has
been found that the profit of the company would be $ 28,59,360 and $ 4498800 respectively.
Further, the break even units and break even amount of the company would be 452104
units and 420041 units, and $ 16,501,791 and $ 14,365,393.
On the basis of the study over all the projects, it has been evaluated that the quality manager’s
proposal is best. As the suggestion does not hamper quality of the product as well as it would
offer the highest net profit to the business. Along with that, the break even unit of the

Accounting case study
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company is also less (Chandra, 2011). To recommend, being a CFO, you should go for
quality control manager’s proposal.
Below are the details of all 4 proposals:
Previous year proposal:
NTM Corporation
Income Statement
For the year ended December 31, 2017
(Amt in $)
P.U. Total
Sales Units 600000
Sales 36 21600000
Less: variable cost of goods sold
Direct labour 0.9 540000
Direct material 5.4 3240000
Variable manufacturing overhead 3.24 1944000
5724000
Gross contribution margin 15876000
Less: variable marketing and administration
expenses
variable selling expenses 1.8 1080000
Contribution margin 14796000
Less: fixed expenses (both manufacturing and
non manufacturing)
Fixed manufacturing Overhead 4200000
Fixed selling expenses 1200000
Fixed operating expenses 2400000
7800000
Net profit 6996000
Cost-Volume-Profit Relationships - Breakeven
Per Unit Amounts
Selling price $ 36.00
Variable costs 11.34
Contribution margin $ 24.66
Total fixed costs $ 7,800,000
Breakeven in units (contribution margin / total
fixed cost) 316,302