Management Accounting: Profitability and Cost Computation of Louise's Business
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Added on 2023/06/06
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Compute the profitability and cost computation of Louise's business based on the details provided in the question sheet. Also, get a report on Louise's business analysis and recommendations.
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MANAGEMENT ACCOUNTING SCENARIO 1-PART 1 In the present question, we are required to compute the profitability and cost computation of business of Ms.Louise based on the details provided in the question sheet. The same has been presented here-in-below: (Amount in AUD) Sl. No.ParticularsAdamsBetzChathamDedhamElmTotal ADirect Cost of sales1,47,0001,17,2002,18,4001,15,72 0 57,04 06,55,360 BIndirect costs of sales - Activity based Overheads of sale 8,51,001,36,1602,21,260 47,09938,00184,12734,80217,23 12,21,260 -Balance over head allocation2784522,46642,52617,5928,7101,19,140 CTotal Cost2,21,9441,77,6673,45,0531,68,11 4 82,98 19,95,760 Further, the profitability analysis of the company has been detailed here-in-below:
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(Amount in AUD) Sl. No.ParticularsAdamsBetzChathamDedhamElmTotal 1 Gross Revenue from sales2,34,0001,88,80035,7,3801,47,84073,20010,01,220 2 Direct Cost of sales1,47,0001,17,2002,18,4001,15,72057,0406,55,360 3 Gross Profit from sales87,00071,6001,38,98032,12016,1603,45,860 4 Indirect costs of sales -Overheads of sales85,1001,36,1602,21,260 47,09938,00184,12734,80217,2312,21,260 -Balance over head allocation27,84522,46642,52617,5928,7101,19,140 5Discount23,4003,66027,060 6 Net Profit from sales-11,34411,13312,326-20,274 - 13,442-21,600 7 Business wise result-211-21,389-21,600
PART 2 Dear Louise, Hope you are in the pink of your health and enjoying the fine weather. This has reference to our last meeting wherein you have asked us to conduct an analysis of your business. In this regard, our analysis is here-in-below: Report on Business of Louise Fairbern The analysis has been carried out on the basis of detail provided by Ms. Louise .The analysis deals with specific attention to cost incurred on each customer to generate revenue, profit generated from each customer and profit generated from business line. The computation of the same is enclosed herewith: (Amount in AUD) Sl. No.ParticularsAdamsBetzChathamDedhamElmTotal 1 Gross Revenue from sales2,34,0001,88,80035,7,3801,47,84073,20010,01,220 2 Direct Cost of sales1,47,0001,17,2002,18,4001,15,72057,0406,55,360 3 Gross Profit from sales87,00071,6001,38,98032,12016,1603,45,860 4 Indirect costs of sales -Overheads of sales85,1001,36,1602,21,260 47,09938,00184,12734,80217,2312,21,260 -Balance over head allocation27,84522,46642,52617,5928,7101,19,140 5Discount23,4003,66027,060 6 Net Profit from sales-11,34411,13312,326-20,274 - 13,442-21,600 7 Business wise result-211-21,389-21,600 On reading of the above tabulation, it may be inferred that:- (a)Gross revenue earned from sales is AUD 10,01,220/- and the cost incurred is AUD 6,55,360/- which represent 65% of the sales. Thus, contribution from business or gross profits is AUD 345860/- which represents 35% of sales.
(b)Indirect cost incurred for generating revenue is AUD 3,40,400/- which represents 35% of the sales value of Louise’s business. Further, these indirect cost has been allocated both activity wise and turnover wise to derive the cost incurred for each customer to generate the sales stated above. (c)Post above, discount allowed by Louise has been deducted to derive the net profit of each individual customer. (d)After the above treatment, one can see that Louise’s business has incurred loss of AUD 21,600/- which represents 2% of sale; (e)Further, analysing the profitability of business division wise one can see that the consultancy service has incurred loss of AUD 211. On the other hand, window treatment service incurred loss of AUD 21,389/. Thus, both division has incurred losses Recommendation (a)Stop offering discount to Mr. Adam and Elm; (b)Focus on cost cutting Conclusion Business is incurring losses. Remedial steps have been proposed.