Accounting for Managers: Financial Analysis and Recommendations

This report provides a comprehensive analysis of accounting for managers, addressing key financial concepts through various scenarios and calculations. The report begins with a comparative analysis of three sales proposals, evaluating their impact on profit margins considering factors like variable and fixed costs, advertising expenses, and potential sales increases. The report then delves into a unit-based cost analysis, comparing different situations to assess profit changes based on sales volume, selling price, and total costs. Furthermore, the report explores overhead allocation, including the estimation of overhead rates, and a detailed cost breakdown of a special order, along with the minimum price per unit. The report concludes with a discussion of overhead allocation methods, the importance of cost segmentation, and the application of Activity-Based Costing (ABC) for effective cost management. It emphasizes the significance of accurate overhead allocation for informed decision-making, profit calculation, and effective business planning.

Running head: ACCOUNTING FOR MANAGERS
Accounting for managers
Name of the student
Name of the university
Author note

1ACCOUNTING FOR MANAGERS
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................4
Question 3..................................................................................................................................5
Question 4..................................................................................................................................6
Reference....................................................................................................................................8

2ACCOUNTING FOR MANAGERS
Question 1
Proposal 1
Particulars Amount
Sales $ 2,800,000.00
Less: Costs
Variable cost $ 1,000,000.00
Fixed cost $ 400,000.00
Fixed selling and administrative cost $ 425,000.00
Variable selling and administrative costs $ 600,000.00
Total costs $ 2,425,000.00
Profit $ 375,000.00
As per the above proposal net income can be increased up to $ 375,000 and can go up
by 25% if the price for sales is increased. Increase in the advertising cost will increase the
burden on the company. As per Jan Rossie sales can be increased by Approx 8% as compared
to last year if the advertising cost and selling price is increased.
Proposal 2
Particulars Amount
Sales $ 3,250,000.00
Less: Costs
Variable cost $ 1,375,000.00
Fixed cost $ 400,000.00
Fixed selling and administrative cost $ 300,000.00
Variable selling and administrative costs $ 750,000.00
Advertising cost $ 50,000.00
Total costs $ 2,875,000.00
Profit $ 375,000.00
As per the above proposal the company can increase the sales by 25% if the selling
price remains same. However, improving the quality can be effective for generating the sales
but chances are there that company will not earn profit more than 1st proposal. Moreover,

3ACCOUNTING FOR MANAGERS
increasing the cost of manufacturing and incurring the advertisement cost will increase the
income by $ 75,000.
Proposal 3
Particulars For 1st 3 months For rest of the time
Sales $ 1,200,000.00 $ 1,820,000.00
Less: Costs
Variable cost $ 500,000.00 $ 700,000.00
Fixed selling and administrative cost $ 300,000.00
Variable selling and administrative
costs $ 300,000.00 $ 420,000.00
Fixed manufacturing cost $ 400,000.00
Total costs $ 1,500,000.00 $ 1,120,000.00
Profit $ (300,000.00) $ 700,000.00
Total profit $ 400,000.00
As per the above proposal company can increase the income by 33% and the company
can earn the sales for next 9 months to $ 182,000. Therefore, promotional campaign will be
beneficial for the company.

4ACCOUNTING FOR MANAGERS
Question 2
Particulars Amount
Sales (units) 150000
Selling price (per unit) $ 15.00
Revenue $ 2,250,000.00
Total cost (per unit) $ 12.50
Total cost $ 1,875,000.00
Profit $ 375,000.00
Situation 1
Particulars Existing Additional
Sales (units) 150000 40000
Selling price (per unit) $ 15.00 $ 15.00
Revenue $ 2,250,000.00 $ 600,000.00
Total cost (per unit) $ 12.50 $ 10.50
Total cost $ 1,875,000.00 $ 420,000.00
Profit $ 375,000.00 $ 180,000.00
Total profit $ 555,000.00
Situation 2
Particulars Existing Additional
Sales (units) 150000 30000
Selling price (per unit) $ 15.00 $ 15.00
Revenue $ 2,250,000.00 $ 450,000.00
Total cost (per unit) $ 12.50 $ 10.50
Total cost $ 1,875,000.00 $ 315,000.00
Profit $ 375,000.00 $ 135,000.00
Total profit $ 510,000.00
Under case 1, the company can increase the profit by 48% and as per the 2nd case it
can generate profit by 36%. Therefore, in case 1 the sales level is higher as compared to case
2.

5ACCOUNTING FOR MANAGERS
Question 3
Over allocation rate estimation
Particulars Amount
Labour hour rate $ 12.70
Indirect cost $ 98,400.00
Labour cost $ 17,780.19
Material cost $ 33,810.00
Other cost $ 6,667.57
Overhead allocation rate $ 5.53
Total cost of special order
Particulars Amount
Labour cost $ 17,780.19
Material cost $ 33,810.00
Other cost $ 6,667.57
Total cost $ 58,257.76
Cost of special order after employing the new machine
Particulars Amount
Overhead rate per hour $ 10.00
Material cost $ 33,810.00
Labour cost $ 14,000.00
Other cost $ 5,250.00
Total cost $ 53,060.00
Minimum price per trailer
Total cost $ 58,257.76
Total unit 350
Minimum cost per unit $ 166.45

6ACCOUNTING FOR MANAGERS
Segmented overhead cost – it can be effective for analysis of the total overhead cost
associated with the machine set up, material purchase, testing, clearing or packaging.
Therefore, the cost pool can be helpful for identification of the cost driver that is useful to
know the unit cost and total cost.
Question 4
There is no appropriate way to allocate the overhead to specific job and as per the
nature the overheads do not relate to the particular job directly. As far as the used method is
acceptable to the company the method is appropriate. The main objective is to provide the
useful information for the decision makers (Shephard 2012). Therefore the most appropriate
method for allocating the overheads is that one which provides the most useful information
though it may be difficult to analyse. However, the basis in which the overheads are allocated
to the jobs shall remain constant. If different methods are applied for different jobs then the
jobs may be overcharged with the overheads or the overheads will be undercharged to the
jobs (Nekarda and Ramey 2013). Thus, the full costing objectives that is, to allocate the
overheads fully to the jobs will not be fulfilled. Therefore, if the selling prices are fixed on
the basis of the full costs, the product will be mispriced as the company will not have enough
amounts to cover all the costs.
Segmentation of overhead is the crucial aspect to allocate the overhead cost as it
delivers support for identifying the associated costs with the material purchase, setting up,
inspection and operation (Xu et al. 2013). For instance, Toyota adopted the segmenting
procedure for allocation the overhead costs for improving the efficiency of costing practice in
the company (Toyota.com 2018). Various cost related to overheads involves administrative
overhead, indirect overheads, manufacturing overheads and selling overheads. It is a crucial
to recognize the kinds of cash properly and categorize these costs properly. For example,

7ACCOUNTING FOR MANAGERS
while any business firm focuses on the segregation of various office supplies and it shall be
taken into account under the administrative overhead. Further, the wages associated with the
production supplies, material handling and utility of equipments that will be considered as
variable overhead (Drury 2013). Accounting and legal expenses, office expenditures, auditing
and audit fees shall be segregated as indirect overhead cost. Therefore, segmenting the
overhead costs contributes to the reduction of risk associated with overhead cost and
undertakes costing procedure efficiently.
Segmenting the overhead costs assists the managers to evaluate entire overhead cost
and the source of cost. As per the ABC method, cost pools are important for recognizing the
indirect cost drivers and costs of direct material (Özkan and Karaibrahimoğlu 2013).
therefore, the allocation of cost through the cost pool will assist the companies realizing
which division of the entity incurring higher cost and what measures can be taken for
reducing the costs with regard to earn profit and high level of cash flows (Öker and Adıgüzel
2016). Further, the allocation of overhead is important for the organizations that have more
than one activity or product or operating division. It also enables the managers in profit
calculation of particular product and determining the economic effect of alternative business
plans and policies. Moreover, overhead allocation also assists in charging the overheads
particularly to the divisions for which the costs are actually incurred.

8ACCOUNTING FOR MANAGERS
Reference
Drury, C.M., 2013. Management and cost accounting. Springer.
Nekarda, C.J. and Ramey, V.A., 2013. The cyclical behavior of the price-cost markup (No.
w19099). National Bureau of Economic Research.
Öker, F. and Adıgüzel, H., 2016. Time‐driven activity‐based costing: An implementation in a
manufacturing company. Journal of Corporate Accounting & Finance, 27(3), pp.39-56.
Özkan, S. and Karaibrahimoğlu, Y.Z., 2013. Activity-based costing approach in the
measurement of cost of quality in SMEs: a case study. Total Quality Management & Business
Excellence, 24(3-4), pp.420-431.
Shephard, R.W., 2012. Cost and production functions (Vol. 194). Springer Science &
Business Media.
Toyota.com., 2018. New Cars, Trucks, SUVs & Hybrids | Toyota Official Site. [online]
Available at: https://www.toyota.com/ [Accessed 7 Jan. 2018].
Xu, C., Song, L., Han, Z., Zhao, Q., Wang, X., Cheng, X. and Jiao, B., 2013. Efficiency
resource allocation for device-to-device underlay communication systems: A reverse iterative
combinatorial auction based approach. IEEE Journal on Selected Areas in
Communications, 31(9), pp.348-358.