Profitability Analysis of Android01 and MiniY

This assignment involves a comprehensive profitability analysis for two fictional products: Android01 and MiniY. The task requires calculating production costs, determining the optimal sales volume for maximum profit, preparing budgets and a statement of profit and loss. The final output should advise the CEO on the potential profitability of undertaking production ventures based on the analyzed data and findings.

Running head: MANAGERIAL ACCOUNTING REPORT
Managerial Accounting Report
Name of the Student:
Name of the University:
Author Note

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MANAGERIAL ACCOUNTING REPORT
Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................3
Answer to Question 3.................................................................................................................4
Answer to Question 4.................................................................................................................5
Answer to Question 5.................................................................................................................6
Answer to Question 6.................................................................................................................7
Answer to Question 7.................................................................................................................8
Introduction............................................................................................................................8
Findings..................................................................................................................................8
Conclusion..............................................................................................................................9
References................................................................................................................................10

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MANAGERIAL ACCOUNTING REPORT
Answer to Question 1
The issue presented in the question is that an analysis of the Allocation of Costs
Report has been asked for as to find out which cost allocation basis would be profitable for
the allocation of the costs provided in the question.
Labor Hours as Allocation Basis:
Overhead Cost Allocation:
Particulars Total Processor01 Android01
Fixed Cost Allocation Rate 100% 70% 30%
Fixed Cost $5,000,000 $3,500,000 $1,050,000
Labor Hours 200 120 80
Variable Cost of Production Facility &
Service $20,000,000 $12,000,000 $8,000,000
Product Cost per unit of Android01:
Particulars Cost per Unit Total Amount
Production Volume 300
Component Cost $25,000 $7,500,000
Fixed Costs $3,500 $1,050,000
Variable Costs $26,667 $8,000,000
Total Production Cost $55,167
Therefore as revealed in the tables above, after allocation and determination of the
fixed costs and the variable costs as mentioned in the question product cost per unit of
Android01 has been calculated. This has been done by adding the component cost with fixed
cost and the variable cost. Therefore, the total production cost for each unit of Android01 is
$55,167. The calculation of the per unit production cost of Android01 is done by dividing the

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total component cost, fixed cost and variable cost by the total number of units produced. The
benefit of the company by allocating the production cost on the basis of labor is that it
provides a clarified basis of allocation of cost, thus, the production cost can be calculated
easily (Hameed et al., 2016).
Answer to Question 2
The issue presented in this question is that what would be the results if the basis of
allocation of the cost had been factory space instead of labor.
Factory Space as Allocation Basis:
Overhead Cost Allocation:
Particulars Total Processor01 Android01
Production Volume 800 500 300
Assembly per unit 180
Total Assemblies 125000 71000 54000
Production Overhead $25,000,000 $14,200,000 $10,800,000
Product Cost per unit of Android01:
Particulars Cost per Unit Total Amount
Production Volume 300
Component Cost $25,000 $7,500,000
Production Overhead $36,000 $10,800,000
Total Production Cost $61,000
As shown in the above table the production overhead has been arrived at by
calculating the cost of each unit of assembly and then multiplying the same with the total
assembly allocated to the product Android01 (Kimms & Kozeletskyi, 2016). This means that
the total production overhead being $25,000,000 and the total assemblies being 125000, the

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MANAGERIAL ACCOUNTING REPORT
production overhead of Android01 is ($25,000,000/125000 * 54000) $10,800,000. Therefore,
the total per unit production cost of Android01 on the cost allocation basis of factory space is
$61,000.
Thus it can be recommended that it will be beneficial for the company when the
allocation of the per unit production cost of Android01 is done on the basis of labor rather
than on factory space as the cost incurred is more. However, the company should also ensure
that the costs are allocated on the basis of proper cost drivers. Allocating costs on the basis of
any cost driver for the purpose of reducing the costs is not recommended (Pennycott et al.,
2014).
Answer to Question 3
Price per unit of Android01:
Particulars Cost per Unit Total Amount
Production Volume 300
Fixed Cost $15,000 $4,500,000
Variable Cost $48,000 $14,400,000
Total Production Cost $63,000
Add: Mark Up @ 30% $18,900
Price per unit $81,900
As mentioned in the question the total variable cost of $4,500,000 when divided by
the total unit of Android01 gives the per unit fixed cost of the product. The variable cost of
each unit of the product has also been mentioned in the question. Therefore, the total
production cost of each unit of Android01 is as shown in table, $63,000. As instructed in the
question when the production cost is marked up by 30%, the price per unit becomes $81,900.

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MANAGERIAL ACCOUNTING REPORT
This will fetch the company a straight profit of ($81,900 – $55,167) $26,733. Therefore, such
a mark-up price would be beneficial for the financial health of the company. However, the
company should also make it a point not to mark-up the price too much as such a hike in
price may lead to losing out on potential customer base.
Answer to Question 4
The level of output that would be required in order to ensure maximum profitability in
case of Android 01 has been determined on the basis of the following table:
Nos. of
Units
Variable Cost per
Unit
Sale Price Per
Unit
Total
Contribution
Fixed
Cost
Profit/
(Loss)
200 $60,000 $70,000 $2,000,000
$4,500,00
0
($2,500,00
0)
250 $54,000 $66,000 $3,000,000
$4,500,00
0
($1,500,00
0)
300 $48,000 $64,000 $4,800,000
$4,500,00
0 $300,000
350 $46,000 $59,000 $4,550,000
$4,500,00
0 $50,000
400 $45,000 $52,000 $2,800,000
$4,500,00
0
($1,700,00
0)
As it is evident from the above table, the different levels of output in terms of number
have been analyzed with different variable cost per unit and sales price per unit. The total
contribution is calculated by multiplying the total number of units with the difference
between sales price per unit and variable cost per unit. For instance, in case of 200 units the
total number of units is multiplied with the difference between sales price per unit that is

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MANAGERIAL ACCOUNTING REPORT
$70,000 and variable cost per unit that is $60,000. Therefore, ($70,000 - $60,000 =) $10,000
* 200 $2,000,000 is the total contribution.
Now, as it is known that profit = contribution – fixed cost
Thus, it can be concluded from the above table that production of 300 units of
Android01 would ensure maximum profitability as the production of such a number of units
would result in a profit of $300,000 (Dorović, 2015).
Answer to Question 5
Computation of Variable Cost per unit:
Products
Total
Amount
Cost per
Unit
Production-Units of MiniY 3000
Component Cost $24,000,000 $8,000
Labor Cost $13,500,000 $4,500
Total Variable Cost per Unit $12,500
Production Cost Budget for May 20X8:
Particulars
Cost per
Unit
Total
Amount
Budgeted Production Volume 3200
Component Cost $8,000 $25,600,000
Labor Cost $4,500 $14,400,000
Rent $1,875 $6,000,000
Depreciation $1,875 $6,000,000
Other $625 $2,000,000
Total Cost $16,875 $54,000,000

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MANAGERIAL ACCOUNTING REPORT
The production cost budget that has been prepared shows the different component of
costs related to production. It gives an estimate of total cost per unit to be incurred to be
$16,875. The budget is beneficial for the company as it forecasts the related costs and
expenditures that are to be expended in order to produce or manufacture a certain product. It
also gives an overview into the variable cost of the product. The budgeted production volume
will also help the company to set its action plan in order to achieve the budgeted production
(Luo, Tan & Xia, 2014, April).
Answer to Question 6
Joint Cost Allocation:
Particulars Total MiniX MiniY
Sales Volume 6200 3000 3200
Joint Cost $3,000,000 $1,451,613 $1,548,387
Statement of Profit & Loss:
Particulars Cost Per Unit Total
Sales Volume- MiniY 3200
Sales Revenue $25,000 $80,000,000
Production Cost ($16,875) ($54,000,000)
Joint Cost ($484) ($1,548,387)
Net Profit/(Loss) $7,641 $24,451,613
The statement of profit & loss that has been prepared in case of MiniY and it is
evident from the above statement that the product results in a net profit of $24,451,613. The
net profit has been calculated by subtracting the production cost and the joint cost from the
total sales revenue generated from the sale of MiniY. The fact that a profit is gained indicates

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MANAGERIAL ACCOUNTING REPORT
that costs incurred in the production of MiniY had been properly budgeted and accordingly
executed by the company. Moreover the production cost has not over casted the revenue
gained from the sale of MiniY further states that the cost allocation techniques and
production volume has been accurately applied and assumed by the company (Kasikci et al.,
2015).
Answer to Question 7
Introduction
The following report provides an overview into the cost allocation techniques, activity
based costing and mark up pricing, budgets and statement of profit and loss in relation to
respective products prepared by the company. The data that has been gathered and analyzed
forecast a suitable future of the company in regards to the production of the proposed
products.
Findings
There have been six ventures to look into the knits and grits of producing Android01
and MiniY. Android01 as a product may incur profit for the company provided that the cost
incurred in producing such a product is allocated to the cost driver of labor instead of factory
spaces or other activity based cost allocators. This is because as provided in the tables the
cost allocated on the basis of labor is less in comparison to cost allocated based upon factory
space (Karthikeyan et al., 2013).
The marked-up price also presents the opportunity to the company to obtain required
sales revenue. However, the management should note and monitor the percentage of mark-up
as the clients or customers may not support an unprecedented rise in the price of the product.

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MANAGERIAL ACCOUNTING REPORT
The sales volume that would fetch maximum profitability in regards to the production
of Android01 is 300 units. This number has been arrived at by calculating the total amount
contribution and then the total amount of profit has been determined by subtracting the fixed
cost from the contribution. Thus, this technique accurately has forecasted the number of units
that would ensure obtaining maximum revenue by the company.
Lastly, a budget has been produced in regards to the cost of production of MiniY and
in order to gauge or measure the efficiency of such budget a statement of profit and loss has
also been prepared. The fact that the budget has been prepared accurately is evident from the
statement of profit and loss which reveals a net profit of $7,641. In simpler terms the
budgeted volume of production and the budgeted cost had been accurately forecasted which
resulted in the incurred sales revenue into profit.
Conclusion
Thus the findings suggest that the production of both the products, namely Android01
and MiniY will be profitable for the company and as the chief financial officer it should be
advised to the CEO to undertake the production venture. The data and findings that have been
analyzed provide enough evidence that the initiative if undertaken by the company and if
executed properly and in accordance with the prepared budgets will result in profits as
indicated by the prepared reports,

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References
Dorović, D. (2015). Supplier Contribution to Profit Calculation and Supplier’s Expense
Levels. Management: Journal of Sustainable Business and Management Solutions in
Emerging Economies, 20(74), 57-68.
Hameed, A., Khoshkbarforoushha, A., Ranjan, R., Jayaraman, P. P., Kolodziej, J., Balaji,
P., ... & Khan, S. U. (2016). A survey and taxonomy on energy efficient resource
allocation techniques for cloud computing systems. Computing, 98(7), 751-774.
Karthikeyan, S. P., Saravanan, B., Jain, A., Ranu, I., Raglend, I. J., & Kothari, D. P. (2013,
February). A comparative study on transmission network cost allocation
methodologies. In Power, Energy and Control (ICPEC), 2013 International
Conference on (pp. 145-152). IEEE.
Kasikci, B., Schubert, B., Pereira, C., Pokam, G., & Candea, G. (2015, October). Failure
sketching: a technique for automated root cause diagnosis of in-production failures. In
Proceedings of the 25th Symposium on Operating Systems Principles (pp. 344-360).
ACM.
Kimms, A., & Kozeletskyi, I. (2016). Core-based cost allocation in the cooperative traveling
salesman problem. European Journal of Operational Research, 248(3), 910-916.
Luo, T., Tan, H. P., & Xia, L. (2014, April). Profit-maximizing incentive for participatory
sensing. In INFOCOM, 2014 Proceedings IEEE (pp. 127-135). IEEE.
Pennycott, A., De Novellis, L., Sorniotti, A., & Gruber, P. (2014). The application of control
and wheel torque allocation techniques to driving modes for fully electric vehicles.

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SAE International Journal of Passenger Cars-Mechanical Systems, 7(2014-01-0085),
488-496.