Accounting for Managers: Financial Alternatives Analysis Report

This report provides a detailed analysis of accounting principles and financial management, focusing on the evaluation of business alternatives for Bonza Handtools Limited. It explores different strategies to enhance profit margins, including pricing adjustments, production improvements, and advertising expenditures. The report utilizes activity-based costing and segmented overhead cost pools to facilitate informed decision-making. Furthermore, it examines the advantages of segregating overhead costs for accurate cost determination, allocation of income and expenses, and identification of profitable business segments. Examples of variable, administration, indirect, and manufacturing overheads are provided, along with real-world illustrations from Melbourne Private Hospital and Redmond Gary to demonstrate practical applications of accounting concepts. The report concludes with recommendations based on the financial analysis.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................4
Part [i]..........................................................................................................................................4
Part [ii].........................................................................................................................................5
Answer to Question 3......................................................................................................................5
Part 1............................................................................................................................................5
Part 2............................................................................................................................................5
Part 3............................................................................................................................................6
Part 4............................................................................................................................................6
Part 5............................................................................................................................................6
Answer to Question 4......................................................................................................................6
References........................................................................................................................................9

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Answer to Question 1
To,
The Director of Bonza Handtools Limited,
Date: 20/1/2018
Subject: Three Provided Alternatives Assessment
Respected Sir/Madam,
The following discussion shows the advantages and effects of provided alternatives in the
company:
Alternative One
As per the accountant, the selling price needs to be $140 for raising the profit margin. As
per the above table, the rise of revenue from $300000 to $375000 will fetch $75000 profit. For

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this profit, advertisement expenses worth $125000 needs to be incurred that will increase the
business risk.
Alternative Two
As per the production manager, the overall product quality will be improved by the rise in
sales volume by 25% and variable cost by $5 per unit. The contribution margin of the company
will be decreased due to the increase in variable cost. In addition, lower advertisement cost will
fetch additional profit worth $75000 (Demski, 2013).
Alternative Three
It is required for the company to make an expenditure of $40000 on advertisement for
making a profit of $60000. Thus, this proposal can contribute to loss of customer as they can
consider the decline in product quality due to decline in price (Demski, 2013).
Recommendations
Based on the above discussion, it is recommended to the directors of the company to
implement the proposal of production manager for increasing its overall revenue.

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Answer to Question 2
Part [i]
In this case, the profit margin can be increased with the use of overall capacity. Thus, as
per the above table, $10.80 is the selling price of the products of Tassie Company and it can be
obtained by adding variable cost, fixed cost and mark-up of 20% on cost price (Warren & Jones,
2018).

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Part [ii]
The current production level is 150000 units per year. Thus, in order to accept the
government contract, the company needs to compromise 10000 units and a profit of $2.50 per
unit. Thus, for the extra units, the cost will be $13.30 per unit and the average price for 40000
units is $11.43 (Edmonds et al., 2016).
Answer to Question 3
Part 1
Part 2

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Part 3
Part 4
Part 5
Business organizations become able to take suitable decisions in cost structure in order to
increase profit with the help of activity-based costing and segmented overhead cost pool. Under
activity-based costing, the identification of direct cost specific department is done along with the
commutation of projected departmental hours (Vanderbeck, 2012). The cost pool indicates
towards direct cost. Thus, competitive pricing structure contributes to increased profit margin.
Answer to Question 4
The segregation of overhead provides major advantage in the determination of cost that
cannot be revealed in the normal course of business at the time of estimating overhead costs and
close association can be seen between them (Ward, 2012). The understanding about the most
profitable business segment can be obtained from the allocation of income and expenses in the

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production departments. On the contrary, effectiveness in overhead cost can be seen in the
presence of the consecration on a single product and this aspect allows the managers in
anticipating the profit margin of products. The organizational accountants have the ability for the
detection of overhead that can contribute towards negative or positive effect on the profit level.
Overhead costs can be divided into various heads of expenses for the determination of individual
job or cost of service (Banerjee, 2012). The following example shows some of the examples:
Variable Overhead Administration
Overhead
Indirect Overhead Manufacturing
Overhead
Utilities of equipment,
production supplies,
wages for the
management of
materials
Office supplies, front
office expenses,
commission paid,
commission paid,
legal cost, external
audit cost, selling
expenses,
administrative
expenses, lease
expenses, sales officer
salary (Cadez &
Guilding, 2012)
Telephone expenses,
office expenditure,
research and
development costs,
administration
salaries, audit fees,
accounting fees, legal
expenses
Rent for factory,
salary for managers,
salary for
maintenance staffs,
payment of property
tax, payment for
factory utilities,
wages for janitorial
staffs (Cadez &
Guilding, 2012)
Instances can be used for the explanation of overheads. For example, a computer system
has been made in the Melbourne Private Hospital for the fixing of the time of treatment and
utilization of this system can be seen in the nurse station. It needs to be mentioned that the
organization uses to record all the costs in a systematic manner as per the duration of the patients
in the hospital. In this process, different relative costs are considered; they are bed fees,

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medicines, meals for the patients and expenses for X-ray. After the recovery of the patients, the
hospital authority uses to provide the patients with the bills for doctor’s fees, medicines
expenses, and other direct and indirect costs. Thus, it can be seen that the hospital use to present
the costs in an effective manner with the assistance of subsidiary ledger that includes the episode
number and the medical number of the patients (Drury, 2013).
An Australian manufacturing organization, Redmond Gary, does the allocation of labor
hours for the accurate cost allocation in the employees for the generation of costs that are
expected to incur by the organization. In addition, it is the responsibility of the accountants for
the maintenance of labor hours and direct costs to the employees. It becomes possible for the
identification of accurate amount of cost need to be incurred with the process to distribute
distinct services and jobs (Cadez & Guilding, 2012). This process provides great assistance in
making decisions for the pricing policy. With the distribution of costs in different services and
jobs, it becomes possible for the tracking of total cost of each department.

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References
Banerjee, B. (2012). Financial policy and management accounting. PHI Learning Pvt. Ltd..
Cadez, S., & Guilding, C. (2012). Strategy, strategic management accounting and performance: a
configurational analysis. Industrial Management & Data Systems, 112(3), 484-501.
Demski, J. (2013). Managerial uses of accounting information. Springer Science & Business
Media.
DRURY, C. M. (2013). Management and cost accounting. Springer.
Edmonds, T. P., Edmonds, C. D., Tsay, B. Y., & Olds, P. R. (2016). Fundamental managerial
accounting concepts. McGraw-Hill Education.
Vanderbeck, E. J. (2012). Principles of cost accounting. Cengage Learning.
Ward, K. (2012). Strategic management accounting. Routledge.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.