ACC00724 Accounting for Managers: Profitability Enhancement Report

This report evaluates strategies to enhance profitability for Pacific Telemet Ltd., a smartphone manufacturer, based on suggestions from the production, sales, and marketing departments. It analyzes the impact of quality improvements, increased advertising, and promotional campaigns on profitability, break-even sales, and margin of safety. The report concludes that the sales manager's suggestion offers the highest potential profitability. Additionally, the report computes bid prices for Go-Go-Grow Ltd., an electric toy car manufacturer, considering factory capacity constraints, determining the optimal bid price to maintain current profit levels under different production scenarios. Desklib is a platform where students can find similar solved assignments and study resources.

Running head: ACCOUNTING FOR MANAGERS
Accounting for managers
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Table of Contents
Answer to Question 1.................................................................................................................2
Introduction............................................................................................................................2
(a) Suggestions from production manager........................................................................2
(b) Suggestions from sales manager.................................................................................3
(c) Suggestions from marketing director..........................................................................4
Conclusion..............................................................................................................................5
Answer to Question 2.................................................................................................................6
Introduction............................................................................................................................6
Current profitability of Go-Go-Grow.....................................................................................6
(a) Bid price when the annual capacity of the factory is 90,000 units..............................7
(b) Bid price when the annual capacity of the factory is 75,000 units..............................8
Conclusion..............................................................................................................................9
Reference..................................................................................................................................10

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Answer to Question 1
Introduction
Pacific Telemet that is involved in manufacture of high end smart phones is
considering ways for enhancing its profits. Hence to implement the way in which the profits
of the company can be improved the CEO of the company asked for suggestions from
different department managers. The report will focus on the suggestions through which the
profitability can be enhanced taking into consideration the other factors like break even sales
(BES) and margin of safety (MOS) (Biondi et al. 2017).
(a) Suggestions from production manager
Production manager suggested that quality improvement will enhance the
profitability. Additional expenses for quality improvement will be $ 36 per unit variable cost
along with $ 60,000 additional cost for advertising. It will results into 30% increase in the
sales.

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It can be identified from the above that the profitability of the company will reduce to
30.13% from 34.78% profit of last year. BES is dollar amount of the revenues from which
point the business starts earning profit (Cafferky 2017). MOS is the difference among actual
sales and BES. If the BES and MOS for the above suggestion provided by production
manager are considered it can be identified that the BES is 5000 that is the company needs to
sell 5000 units for generating profit. On the other hand the MOS is 67.95% of the sales.
(b) Suggestions from sales manager
Sales manager suggested that the increase in advertising will increase the product
knowledge among the potential buyer and eventually it will increase the sales and profit. For
implementing this, the advertising cost will be increased by $ 120,000 and it will enable to
increase the product price by $ 60. However, the sales unit will drop by 12% (Cooper 2017).

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It can be identified from the above that the profitability of the company will increase
to 38.02% from 34.78% profit of last year. If the BES and MOS for the above suggestion
provided by sales manager are considered it can be identified that the BES is 3600 that is the
company needs to sell 3600 units for generating profit. On the other hand the MOS is 65.91%
of the sales that is slightly lower as compared to the suggestion provided by production
manager (Christ and Burritt 2015).
(c) Suggestions from marketing director
As per the suggestion of marketing director a promotional campaign where $ 40
rebate will be offered to 1st 2500 purchasers and advertisement expenses are increased by $
50,000 it will enhance the sales by 2000 units.

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It can be identified from the above that the profitability of the company will increase
to 35.49% from 34.78% profit of last year. If the BES and MOS for the above suggestion
provided by sales manager are considered it can be identified that the BES is 4208.33 that is
the company needs to sell 4208.33 units for generating profit. On the other hand the MOS is
69.94% of the sales that is higher as compared to the suggestion provided by production
manager and sales manager.
Conclusion
From the above discussion and facts it can be concluded that if the profitability aspect
is considered the suggestion provided by sales manager will be considered best as it can
enhance the profitability to 38.02%. However, if the other factors like BES and MOS are
considered sales manager’s suggestion may not be seemed as best but as the main objective
was to improve the profitability sales manager’s suggestion shall be considered.

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Answer to Question 2
Introduction
GO-Go-Grow Ltd that is engaged in manufacturing electric toy car for the children is
considering accepting a contract a contract for 20000 units from an overseas company Mantel
Ltd. However, the company has limited capacity of its factory. The main objective of the
report is to compute the bidding price for the contact taking into consideration various level
of constraint for the factory capacity (Marota et al. 2017).
Current profitability of Go-Go-Grow

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(a) Bid price when the annual capacity of the factory is 90,000 units
In normal scenario when the factory capacity is 90,000 units per annum the
incremental profit from taking up the 20,000 unit’s contract is 63.89% and the aggregate
profit is 53.74%.
When the capacity of the factory is 90,000 units the company will not have to make
any adjustment to the existing units that is (5000*12) = 60,000 units and the incremental
units can be manufactured along with the existing manufacturing of 60,000. It will make total
production of (60,000 + 20,000) = 80,000 units that can be easily accommodated with the
capacity of 90,000 unit capacity. However, if the company wants to maintain the current
profit level of 50% it shall bid $ 620 per unit for the new contract for 20,000 units (Havaldar
and Cavale 2017).

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(b) Bid price when the annual capacity of the factory is 75,000 units
When the factory capacity is only 75,000 units per annum the incremental profit from
taking up the 20,000 unit’s contract is 63.89% and the aggregate profit is 49.17% as the profit
for existing production of (75,000 – 20,000) = 55,000 units reduced to 49.18% from existing
50%.
When the capacity of the factory is only 75,000 units the company will have to make
adjustments to the existing units that is the existing production of 60,000 units are to be
reduced to (75,000 – 20,000) = 55,000 units. It will make total production of (55,000 +
20,000) = 75,000 units that can be accommodated with the capacity of 75,000 unit capacity.
However, if the company wants to maintain the current profit level of 50% it shall bid $
744.30 per unit for the new contract for 20,000 units (Donnell et al. 2016).

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Conclusion
From the above computation table it can be concluded that if the capacity is 90,000
units the company can earn higher amount of profit as no adjustment is required for the
existing units of production and the incremental profit will be earned on additional 20,000
units. Opportunities associated with the acceptance of this order is that if Mantel Ltd is
satisfied with the order they will place more orders. However, the disadvantages associated
with the order are chances of bad debt and the loss that has to be bear by the company for
sales of existing 5000 units.

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Reference
Biondi, L., Gulluscio, C., Rossi, A. and D'Alessio, L., 2017. Accounting costs without a cost
accounting system: the case of a small Italian winery of excellence. Piccola Impresa/Small
Business, (3).
Cafferky, M.E., 2017. Estimating retail breakeven using markup pricing. Management
Accounting Quarterly, 18(2).
Christ, K.L. and Burritt, R.L., 2015. Material flow cost accounting: a review and agenda for
future research. Journal of Cleaner Production, 108, pp.1378-1389.
Cooper, R., 2017. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Donnell, E., Wood, J., Himes, S. and Torbic, D., 2016. Use of side friction in horizontal
curve design: A margin of safety assessment. Transportation Research Record: Journal of
the Transportation Research Board, (2588), pp.61-70.
Havaldar, K.K. and Cavale, V.M., 2017. Sales and Distribution Management, 3/e: Text &
Cases. McGraw-Hill Education.
Marota, R., Ritchi, H., Khasanah, U. and Abadi, R.F., 2017. Material Flow Cost Accounting
Approach for Sustainable Supply Chain Management System. International Journal of
Supply Chain Management, 6(2), pp.33-37.