Management Accounting: CVP Analysis and Profit/Loss from Operations

This article discusses the CVP analysis and profit/loss from operations of Crunchy Chips. It includes a table and graph representing the company's expenses and operating costs. The article also provides a memorandum for Jerahmel on how to improve profits by reducing fixed costs and raw material expenses.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
1. Portraying the 2018 profits/loss from operations:..................................................................2
2. CVP Analysis of the Potato production:................................................................................3
3. Portraying Memorandum for Jerahmel:.................................................................................4
Reference and Bibliography:......................................................................................................6

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1. Portraying the 2018 profits/loss from operations:
Particulars Units Amount Amount
Revenue (50,000 kg) $8.00 $400,000.00
Variable Expenses
Potato $2.00 $100,000.00
Cooking ingredients $0.20 $10,000.00
Packaging (materials) $0.30 $15,000.00
Labour (wages) $3.00 $150,000.00
Sales commissions $0.10 $5,000.00 $280,000
Fixed Expenses
Administrative (inspector’s monthly salary) $150,000
Annual machine and building depreciations 75,000 $225,000
Total expenses $505,000
Profit/ Loss ($105,000)
The above table relatively represents the overall loss, which will incur by Crunchy
Chips, if they continue with the operations in 2018. This loss only incurs due to the presence
of high fixed cost incurred by the organization, such as administrative and annual
depreciation expenses. The high fixed expenses incurred by the organization is the main
reason behind their demise, as they are not able to compete in the market and are losing
market share to Chinese company. Therefore, Crunchy Chips should not operate in 2018 due
to the high expense and low income generated during the fiscal year (Armitage, Webb &
Glynn, 2016).

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2. CVP Analysis of the Potato production:
Particulars Value
Contribution units $2.40
Fixed Expenses $225,000
Break Even Point 93,750
Particulars Value
Break Even Point 93,750
Sales Price $8.00
Breakeven point in sales $750,000
The above calculations and Grab a relatively represents the overall CVP analysis of
the potato production which is conducted by crunchy chips. The evaluation of breakeven
point indicates that a minimum amount of 93,750 needs to be produced by the companies to
make break even from its production. Therefore, a revenue of total 750,000 needs to be

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accumulated by the company to generate no profit no loss from its operations. The graph
adequately represents the rising expenses and operating cost incurred by the company over
the period where any reduction in production units by 93,750 will result in loss for the
company (Klemstine & Maher, 2014).
3. Portraying Memorandum for Jerahmel:
Memorandum:
To: Jerahmel and Angel
From: Consultant
Subject: CVP Analysis of the Crunchy Chips
Sir,
After evaluating the operational process of crunchy chips different segments of fixed cost can
be identified which needs to be amended by the organisation to improve its profits. The
competitive edge of Chinese companies is the low pricing criteria, which needs to be fulfilled
by Crunchy chips to increase its competitiveness in the market. The reduction in
administrative expenses needs to be conducted by the company for minimising the fixed cost
incurred from operations. Moreover, the use of a freelance inspector needs to be conducted
which might minimise the expenses when production is not high for the organisation. The
production of potatoes is not fixed for the organization, where adequate changes in the
production system could eventually help to minimize expenses and maximize profits. the raw
material expenses need to be reduced by evaluating different level of Suppliers for the
production process and maximize the level of profits from operations. However, in the

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current scenario crunchy chips need to maintain an adequate fields value of 750,000 to incur
no loss no profit scenario, which needs a total sales volume of 93,750.
Sincerely
Consultant

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Reference and Bibliography:
Armitage, H. M., Webb, A., & Glynn, J. (2016). The use of management accounting
techniques by small and medium‐sized enterprises: a field study of Canadian and
Australian practice. Accounting Perspectives, 15(1), 31-69.
Gean, F., & Gean, V. (2015). The Desirability of an Integrated Learning Methodology for
Enriching CVP Analysis. Journal of Business and Accounting, 8(1), 127.
Kamal, S. (2015). Historical Evolution of Management Accounting. The Cost and
Management, 43(4), 12-19.
Klemstine, C. F., & Maher, M. (2014). Management Accounting Research (RLE Accounting):
A Review and Annotated Bibliography. Routledge.
Klychova, G. S., Zakirova, A. R., Zakirov, Z. R., & Valieva, G. R. (2015). Management
aspects of production cost accounting in horse breeding. Asian Social Science, 11(11),
308.
Krumwiede, K. R., Paik, G. H., & Walden, W. D. (2018). Can Management Accounting Help
Aid Associations Make Tough Choices in Haiti?. Issues in Accounting Education
Teaching Notes, 33(1), 1-16.
Nimtrakoon, S., & Tayles, M. (2015). Explaining management accounting practices and
strategy in Thailand: A selection approach using cluster analysis. Journal of
Accounting in Emerging Economies, 5(3), 269-298.
Pavlatos, O., & Kostakis, H. (2015). Management accounting practices before and during
economic crisis: Evidence from Greece. Advances in accounting, 31(1), 150-164.