ACC00724 Accounting for Managers Assignment Solution: Profit Analysis

This assignment solution analyzes the financial data of Pacific Telemat Ltd., a company manufacturing smartphones. It presents profit calculations under various scenarios proposed by different managers, including advertising campaigns, increased variable costs, and rebates. The solution explores the implications of these alternatives on profitability, considering both quantitative and qualitative factors. It also includes an analysis of a special order, determining bid prices based on spare capacity and potential losses. Furthermore, the solution reflects on the importance of management accounting in decision-making and the impact of financial choices on a company's success. The document is completed with Harvard referencing style.

ACCOUNTING FOR MANAGERS

Solution 1.
The data that is provided in these tables below relates to Pacific Telemat Ltd. whose principle
business activity is to manufacture smart phones with dual sim cards. The following tables give
us financial information of the company of the last year (Atkinson, 2012).
The profit calculations under various alternatives are shown in the table provided below:
Financial data from last year
Sales
12,0
00
Selling price
4
60
Variable manufacturing cost
1
84
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs 36
Fixed selling and administrative costs
6,00,0
00
Profit statement (under current circumstances)
Particulars Amount
Sales
55,20,0
00
Less:
Variable manufacturing cost
22,08,0
00
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative 4,32,0

costs 00
Fixed selling and administrative costs
6,00,0
00
Profit/Loss
19,20,0
00
Alternative 1:
Proposal by David Groate
Sales
15,6
00
Selling price
4
60
Variable manufacturing cost
2
20
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs 36
Fixed selling and administrative costs
6,00,0
00
Advertisement charges
60,0
00
Profit statement
Particulars Amount
Sales
71,76,0
00
Less:
Variable manufacturing cost
34,32,0
00

Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs
5,61,6
00
Fixed selling and administrative costs
6,00,0
00
Advertisement charges
60,0
00
Profit/Loss
21,62,4
00
In this alternative, the management of the company decided to spend $60000 on advertisement
and also it estimated an increase of variable cost by $36 per unit. This resulted in overall extra
profits of $242000.
Alternative 2:
Proposal by Kristen Arnold
Sales
10,5
60
Selling price
5
20
Variable manufacturing cost
1
84
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs 36
Fixed selling and administrative costs
6,00,0
00
Advertisement charges
1,20,0
00

Profit statement
Particulars Amount
Sales
54,91,2
00
Less:
Variable manufacturing cost
19,43,0
40
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs
3,80,1
60
Fixed selling and administrative costs
6,00,0
00
Advertisement charges
1,20,0
00
Profit/Loss
20,88,0
00
In this alternative the volume of sales decreased by 12% and also there was an increase in
advertisement expense by $120000 still the company managed to earn $168000 more than what
it usually earns under normal circumstances (Berry, 2009.
Alternative 3:
Proposal by Jess Sutherland
Sales
14,0
00
Selling price
4
60
Variable manufacturing cost 1

84
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs 36
Fixed selling and administrative costs
6,00,0
00
Rebate
1,00,0
00
Advertisement charges
50,0
00
Profit statement
Particulars Amount
Sales
64,40,0
00
Less:
Variable manufacturing cost
25,76,0
00
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs
5,04,0
00
Fixed selling and administrative costs
6,00,0
00
Rebate
1,00,0
00
Advertisement charges
50,0
00
Profit/Loss
22,50,0
00

Under this alternative, the managing director is offering to provide a rebate of $40 for the first
2500 phones that would be sold (Boyd, 2013). He also expects that the sales volume will
increase by 2000 units which would increase the revenue by $50000. In comparison to the
normal circumstances, the company would be able to earn extra profits of $330000.
It has been found on observation that the company is able to earn extra profits under all
alternatives in comparison to the normal circumstances. A company has to look upon qualitative
as well as quantitative factors before choosing any of the alternatives that is stated above
(Horngren, 2012) . If the company has to take a decision based on quantitative factors then it
would look upon the profits earned. The qualitative factors may include the quality of the
product and not compromise with quality in order to reduce the price. It is important for the
company to promote the product properly so that there is an increase in the sales volume which
would help in earning higher profits (Holtzman, 2013).

Solution 2:
Part 1.
a) A company can accept a special order if it has spare capacity left after fulfilling the
current demand of production. In the given case, the total annual production capacity is
90000 units and the after fulfilling the current demand the spare capacity is equal to
30000 units. However, the acceptance of special offer would require a capacity of 20000
units only. So the special order can be accepted (Noreen, 2015).
The table provided below shows the calculation of bid price:
Cost statement - special order
Direct Material Cost 30,00,000
Direct Labor Cost 15,00,000
Variable Factory Overhead 7,00,000
Fixed Factory Overhead 8,00,000
Total Manufacturing Cost 60,00,000
Units 20,000
Bid Price per unit
300
b) In this case, the annual production capacity of the company is 75000 units. The
production at the current stage is 60000 units and the spare capacity is only 15000 units.
The company is left with only two choices either to reject the special order completely or to cut
down the current production (Seal, 2012). If the company decides to cut down the current
production then it would have to bear the loss of $1800000.
The bid price under this situation is shown in the table below:
Cost statement - special order
Direct Material Cost
30,00,0
00

Direct Labor Cost
15,00,0
00
Variable Factory Overhead
7,00,0
00
Fixed Factory Overhead
8,00,0
00
Total Manufacturing Cost
60,00,0
00
Loss of profits from existing demand (5000*360)
18,00,0
00
Total Cost
78,00,0
00
Units
20,0
00
Bid Price per unit
3
90
The above calculation shows that the company can accept the special offer only when it charges
$390 per unit or above from each customer.
Part 2.
The annual capacity of production for the company was 90000 units and the spare capacity was
of 30000 units. The capacity required to accept the special order was 20000 only. Since, the
capacity was left spare after fulfilling the current demand the company must accept the special
offer. The acceptance of this special order would help the company to increase its volume of
sales which would help in earning higher profits (Siciliano, 2015). The company will not have to
incur any sort of extra costs if it produces goods for this special order. It should also take into
consideration the profit margin and production cost. The bid price which is calculated $300 per
unit is the minimum price that has to be charged to the customers. The company should always
consider the product quality and never compromise with it just to reduce the expense because it
can hurt the customer base of the company in the long run.

Solution 3:
I pursued commerce as my subject in my higher education. In the fields of commerce, we are
taught about commercial applications and accountancy.
It has taught me that how a company Is formed and various activities are carried out. There are
day to day transactions in the company which are recorded. It is known that the company’s are
formed to earn higher profits which will be possible when there is higher cash generation and
lower expenses. So, the management of the company has a major role in taking such decisions
which might affect the company.
According to me, management accounting is the most useful for my future career because it
deals with the decision making process that occurs within the organization. A wrong decision
taken up by the management can affect the entire company along with the stakeholders. So, it is
important to have basic knowledge of tools of management accounting so that the management is
able to take all its decisions efficiently and on reasonable basis.

References:
Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.
Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.
Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.
Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Noreen, E. (2015). The theory of constraints and its implications for management accounting.
Great Barrington, MA: North River Press.
Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.
Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.