ACC00724 S3 2018: Accounting for Managers Assignment Solution

This assignment solution for Accounting for Managers (ACC00724) analyzes the financial data of Pacific Telemet Ltd., a smartphone manufacturer. It presents calculations of profitability under various scenarios, including proposals from different managers to increase sales and reduce costs. The solution includes detailed profit statements and explores the impact of advertising campaigns, variable costs, and rebates. It also addresses a special order decision, considering production capacity and relevant costs. Furthermore, the assignment discusses both quantitative and qualitative factors in pricing decisions, emphasizing the importance of product quality and customer satisfaction. The solution provides a comprehensive analysis of cost accounting principles and managerial decision-making.

ACCOUNTING FOR MANAGERS

Contents
Solution 1:...................................................................................................................................................2
Solution 2:...................................................................................................................................................8
Bibliography...............................................................................................................................................11

Solution 1:
The table provided below provides financial information of Pacific Telemat Ltd. That is engaged
in the manufacturing of smart phones with dual sim cards. The financial information relates to
last year and the profit that has been calculated is under the current situation (Atkinson, 2012).
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 (12000*460)
55,20,0
00
Less:
Variable manufacturing cost
(12000*184)
22,08,0
00
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs (12000*36)
4,32,0
00

Fixed selling and administrative costs
6,00,0
00
Profit/Loss (Sales-cost)
19,20,0
00
The profit has been calculated by subtracting all the costs from revenue. The total costs include
both manufacturing and selling costs (fixed as well as variable). The revenue amounts to
5520000 and the total costs amounts to 3600000. The profit earned was (5520000-3600000)
=1920000.
The tables provided below shows us the calculation of profits under various alternatives.
Under all the alternatives, the profit is calculated in the similar manner i.e Sales- Variable
manufacturing cost- Fixed manufacturing cost – Variable selling and administration costs –
Fixed selling and administration costs = Profit
Alternative 1:
The profits under this alternative are higher than what was expected. The company has incurred
an additional expenditure of $60000 in relation to advertisement and $36 per unit in relation to
variable costs that would help to generate an additional profit of $242400 (Berry, 2009).
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 (15600*460)
71,76,0
00
Less:
Variable manufacturing cost
(15600*220)
34,32,0
00
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs (1500*36)
5,61,6
00
Fixed selling and administrative costs
6,00,0
00
Advertisement charges
60,0
00
Profit/Loss (Sales-cost)
21,62,4
00
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 (10560*520)
54,91,20
0
Less:
Variable manufacturing cost
(10560*184)
19,43,04
0
Fixed manufacturing costs
3,60,00
0
Variable selling and administrative
costs (10560*36)
3,80,16
0
Fixed selling and administrative costs
6,00,00
0
Advertisement charges
1,20,00
0
Profit/Loss (Sales-cost)
20,88,00
0
The profits under this alternative are higher than the profits under normal circumstances (Boyd,
2013). The company was able to earn additional profits earned under this alternative amounts to
$168000 even though there was an increase in advertisement expense by $120000 and decrease
in the sales by 12%.

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 (14000*460)
64,40,0
00
Less:
Variable manufacturing cost
(14000*184)
25,76,0
00
Fixed manufacturing costs
3,60,0
00
Variable selling and administrative
costs (14000*36)
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 (Sales-Cost)
22,50,0
00
Under this alternative, a recommendation was made by Jess to increase the advertisement by
$50000 and also provide discount of $40 to the customers who bought the first 2500 mobile
phones (Holtzman, 2013) . In spite of this recommendation, this alternative proved to be the best
because it was expected that this would lead to an increase of sales volume by 2000 units which
would help the company to earn extra profits. The additional profits earned because of the
recommendation made by Jess would amount to $330000.
From the calculations provided in the tables above, it is clear that the profits earned under all of
these alternatives is higher when compare to the normal circumstance (Horngren, 2012). As we
know, it is not enough to take into consideration only quantitative factors. We must consider
qualitative factors also to price a particular product that has been manufactured. If we look upon
the quantitative factors, then the company must choose the alternative that provides highest
profits. The most important qualitative factor that must be taken into consideration is the quality
of the product. A company should never compromise with the product’s quality in order to
reduce the price because it would harm the company in the long run. The focus of the company
should be to increase the sales volume and to promote its product efficiently.

Solution 2:
Part 1:
(a) The total production capacity of the company is 90000 units annually and the spare
capacity is 30000 units. The company has received a special order of 20000 units which
is within the spare capacity. Therefore, the company can accept the special order as it
would increase the sales volume of the company which will have an ultimate impact on
the profits of the company (Noreen, 2015).
The table provided below shows the calculation for the bid price :
Cost statement - special order
Direct Material Cost (20000*150) 30,00,000
Direct Labor Cost (20000*75) 15,00,000
Variable Factory Overhead
(20000*35) 7,00,000
Fixed Factory Overhead (20000*40) 8,00,000
Total Manufacturing Cost 60,00,000
Units 20,000
Bid Price per unit
300
Total manufacturing costs= Direct material cost + Direct Labour cost + Variable Factory
overhead +Fixed Factory overhead
Bid price = Total manufacturing costs / Units
(b) The annual production capacity of the company is 75000 units. The capacity utilised by
the company amounts to 60000 units which means that the company has a spare capacity
of (75000-60000) units i.e. 15000 units. The capacity required to accept the special order
is 20000 units. So, in this case the company has to either reject the special order or has to
cut off the current production of the company. However, if the company cuts off the

current production then it would have to bear losses of $1800000 (Seal, 2012). The
calculation of the bid price is shown below:
Cost statement - special order
Direct Material Cost (20000*150)
30,00,0
00
Direct Labor Cost (20000*75)
15,00,0
00
Variable Factory Overhead (20000*35)
7,00,0
00
Fixed Factory Overhead (20000*40)
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 must charge $390 per unit or above if it wants to
accept the special order.
Part 2:

If the annual production capacity of the company is sufficient to fulfil the current demand as well
as the special order then the company must accept the special order as it would result to increase
of sales volume which would affect the profit generation of the company. The acceptance of this
special order will not increase the costs incurred by the company. However, the company must
take into consideration the cost of production and the profit margin while taking up such special
order. The bid price that has been calculated for such a situation in this question is $300 per unit
which means that the company must price the product at $300 per unit or more. There are
certain quantitative factors also that the company should look upon before accepting such order.
The two main factors are spare capacity and product quality. The company must check that the
normal demand of the product must be fulfilled (Siciliano, 2015). Also, it should make sure that
the company is not compromising with the product’s quality. It is the main objective of the
company to satisfy its customers if it wants to survive in the long run. Therefore, the product
quality should always be maintained.

Bibliography
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.