1102AFE Accounting for Decision Making Trimester 3 Homework 7 Analysis

This document presents a comprehensive solution to an accounting homework assignment (1102AFE) focusing on decision-making. It provides detailed calculations and answers for three key areas: Cost-Volume-Profit (CVP) analysis, special order decisions, and make-or-buy decisions. The CVP analysis includes calculations for contribution margin, break-even points, and profit projections under various scenarios. The special order section evaluates whether to accept an order based on incremental revenue and costs. Finally, the make-or-buy decision analyzes the costs associated with producing a component versus purchasing it from an external supplier, incorporating both quantitative and qualitative factors. The solution demonstrates a clear understanding of cost accounting principles and their application in managerial decision-making.

1102AFE ACCOUNTING FOR DECISION MAKING
Trimester 3, 2019
Assessable Homework 7 – Question
TOTAL MARKS = 24 marks—divide by 8 to get a % out of 3%
Question 1 – CVP Analysis (12 marks)
Brandon Manufacturing provides the data below relating to its single product for 2020:
 Selling price per unit $20
 Annual fixed manufacturing costs $250,000
 Annual fixed non-manufacturing costs $30,800
 Variable manufacturing costs per unit $12
 Variable selling costs per unit $2
 Annual sales volume expected in 2020: 52,000 units
Required:
Complete the following table calculating each requirement listed in the table.
Requirements:
1. Contribution margin per unit =(20-12-2) =6.00
2. Contribution margin ratio =6/20
=30.00%
3. Breakeven point in units =(250,000+30,800)/6
= 46,800
4. Breakeven point in sales dollars =46,800 x 20
= 936,000
5. Firm’s profit if 46,800 units are sold = (46800*6)-(250,000+30,800)
=0
6. Firm’s profit if 52,000 units are sold == (52,000*6)-(250,000+30,800)
= 31,200.00
7. Break even point if variable manufacturing costs
decreases by $2 per unit
=(250,000+30,800)/(6+2)
= 35,100.00
8. Break even point if variable manufacturing costs increases
by $2 (from original cost and fixed manufacturing costs
=(250,000+30,800-100,000)/(6-2)
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1102AFE ACCOUNTING FOR DECISION MAKING
Trimester 3, 2019
decreases by $100,000 = 45,200.00
9. What is the total contribution margin expected in 2020? =52,000 x 6
= 312,000.00
10. What would be the expected profit in 2020 if fixed costs
increased by $20,000.
=(312,000-(250,000+30,800-20,000))
= 51,200.00
Question 2 – Accept or reject an special order (Use data from Question 1) (5 marks)
The production capacity of Brandon Manufacturing is 65,000 units. Brandon Manufacturing receives an
offer from TMart Ltd (a foreign wholesaler) to purchase an additional 10,000 units at $15 per unit. If
the offer from TMart Ltd is accepted, Brandon manufacturing would incur additional fixed costs of
$35,000 but it would not incur any additional variable selling costs. Based on data estimated by
Brandon Manufacturing for 2020, should Brandon accept the offer? Justify your decision answering the
following questions:
Question 3 – Make or buy decision (7 Marks)
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Requirements:
1. What is the available production capacity to decide whether to
accept or not the offer?
65,000-52,000 = 13,000 units
2. What would be the incremental revenue if the offer is
accepted?
10,000 x 15
=150,000
3. What would be the incremental cost if the offer is accepted? 35,000
4. Would you accept the offer or not? Why? The offer needs to be accepted, as
the company has the capacity to
produce the relevant units. Hence,
the offer should be accepted

1102AFE ACCOUNTING FOR DECISION MAKING
Trimester 3, 2019
Best Aircon Ltd produces one model of air conditioner that uses different components. One of the components is
the compressor. Each airconditioner uses one compressor. The company currently produces 8,000 compressors
per year. Total variable costs per compressor is $240. The annual fixed costs for the production line of the
compressors is $800,000. 40 per cent of these costs can be avoided if the production line is closed. The remaining
60% of the fixed costs are unavoidable.
QC Ltd contacted Best Aircon and offer to sell the 8,000 compressors per year at a cost of $260 per compressor.
Should Best Aircon Ltd accept the offer from QC Ltd? Justify your decision answering the following questions:
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Requirements:
1. What is the cost to make the air compressors? Show your
calculations here …………………………………………………………………………..
=(8000x240)+800,000
=2,720,000/8000
=340
2. What is the cost to buy the air compressors? Show your calculations
here ……………………………………………………………………………………………….
=(8000x260)+480,000
=2,560,000/8000
=320
3. Would you accept the offer? Yes, I would accept
the offer
4. Why? (explain in one sentence)
 The offer needs to be accepted, as the ovral cost of buying is less than producing the
compressors.
5. What qualitative factor would change your decision? (answer in one sentence)
 Competition and quality of the product are the major factos that can change the decision.