University Cost Accounting Assignment: Breakeven, ABC, and Analysis

This document presents a comprehensive solution to a cost accounting assignment. The assignment explores key concepts such as breakeven analysis, contribution margin, and activity-based costing (ABC). Problem 1 focuses on calculating breakeven units, analyzing the feasibility of an advertising campaign, and understanding the relationship between fixed and variable costs. Problem 2 delves into the calculation of contribution margin per unit and the breakeven point. Problem 3 utilizes direct labor hours and ABC methods to calculate product costs, including factory overhead allocation. The solution includes detailed calculations, explanations, and references to relevant cost accounting principles. It provides a step-by-step approach to solving cost accounting problems, making it a valuable resource for students studying finance and accounting. The assignment covers topics like calculating breakeven points, fixed costs, variable costs, contribution margin per unit, and factory overhead, offering a practical application of cost accounting principles.

Running head: COST
Cost
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Problem 1.........................................................................................................................................2
a)......................................................................................................................................................2
b)......................................................................................................................................................2
c)......................................................................................................................................................3
Problem 2.........................................................................................................................................3
a)......................................................................................................................................................3
b)......................................................................................................................................................4
c)......................................................................................................................................................4
Problem 3.........................................................................................................................................4
1.......................................................................................................................................................4
2.......................................................................................................................................................5
3.......................................................................................................................................................6
Reference.........................................................................................................................................7

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Problem 1
a)
Statement showing calculation of breakeven units
Particulars Amount
Sales price $199.00
Less:
Variable Cost $100.00
Contribution $99.00
Advertisement expenses (Fixed) $20,000,000.00
Break even units 202020
The above calculation shows that additional 202020 units will be required for making
breakeven on the advertisement expenses. The current market trend indicates that the sales of the
product is declining. Therefore, the total sales that will be required to recover the fixed cost is
502020 units. That means if the current trend of declining sales continues then this quantity of
sales is not feasible (Cost 2016). However, if the sales increase as a result of advertising
campaign then it could be possible to attain the higher sales units.
b)
The Breakeven point is that level of sales where the total cost and the total revenue from
a product is equal. In this level of breakeven sales, the total profit of the company is zero. The
company will make profit if it makes sales above the breakeven sales. On the other hand, if the
sales of the company is less than the breakeven sales then the company will be making losses
(Schuster 2015). The calculation and analysis of the breakeven point is very essential because it
helps the management to develops stargazes for profitable operations. The formula for
calculating the breakeven point is:

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Breakeven point= Fixed costs/ (Sales – Variable costs)
Breakeven point =Fixed Cost/Contribution per unit
c)
The planned cost of the advertising campaign is $20 million. The main purpose of the
advertising campaign is to increase the sales. The calculation earlier have shown that in order to
recover the additional advertising cost Larson will be required to make additional sales of
202020 units just to attain the breakeven (Klychova et al. 2015). Therefore, it can be said that in
order to make substantial profit the company will require to make sales of more than 6 million
units. The current sales is 3 million so the advertising campaign should double the current sales
in order to make company profitable and the advertising campaign feasible. Therefore, based on
the above analysis it can be said that it is not feasible for Larson to sell this quantity if she
undertakes the advertising campaign.
Problem 2
a)
Statement showing Contribution margin per unit
Particulars Amount Amount
Selling price $20.00
Less:
Direct material $4.00
Direct manufacturing labor $1.60

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Manufacturing overhead $0.40
Selling cost $2.00
Total Variable Cost $8.00
Contribution margin per unit $12.00
b)
Statement showing calculation of breakeven point
Particulars Amount
Fixed Cost $96,000.00
Contribution per unit $12.00
Breakeven point (units) 8000
c)
Statement showing calculation of units
Particulars Amount
Fixed Costs $96,000.00
Required profit $144,000.00
Total contribution $240,000.00
Contribution per unit $12.00
Number of Units $20,000.00
Problem 3
1.
Statement showing calculation of cost
using Direct labor hour
Particulars Bag Shoes
Units Produced 4000 2000

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Labor hour per unit 2 0.5
Total Labor Hour required 8000 1000
Direct material $120,000.00 $34,000.00
Direct Labor cost $64,000.00 $8,000.00
Factory Over head $240,000.00 $30,000.00
Total Cost $424,000.00 $72,000.00
Cost of each product $53.00 $72.00
Calculation of Factory overhead recovery rate
Particulars Amount
Total labor hour 9000
Total factory Overhead $270,000.00
Overhead recovery rate $30.00
2.
Statement showing distribution of overhead using activity based costing
Particulars Activity Leather Shoes Total
Production set up Setups $20,000.00 $60,000.00 $80,000.00
Material Handling Lbs. $14,000.00 $56,000.00 $70,000.00
Packaging and shipping boxes $80,000.00 $40,000.00 $120,000.00
Total $114,000.00 $156,000.00 $270,000.00
Statement showing calculation of activity cost rate
Particulars Amount
Production Setups
Budgeted Production setup $80,000.00
Total Set up 20

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cost per set up $4,000.00
Material Handling
Budgeted cost $70,000.00
Volume 5000
Cost per lbs. $14.00
Packaging and Shipping
Budgeted over head $120,000.00
Estimated boxes 6000
Cost per box $20.00
3.
Statement showing calculation of cost
using Activity based
Particulars Bag Shoes
Units Produced 4000 2000
Labor hour per unit 2 0.5
Total Labor Hour required 8000 1000
Direct material $120,000.00 $34,000.00
Direct Labor cost $64,000.00 $8,000.00
Production set up $20,000.00 $60,000.00
Material Handling $14,000.00 $56,000.00
Packaging and shipping $80,000.00 $40,000.00
Total Cost $298,000.00 $198,000.00
Cost of each product $37.25 $198.00

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Reference
Cost, T.M.I., 2016. Cost and Management Accounting.
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects of
production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.
Schuster, P., 2015. Cost and Management Accounting. In Transfer Prices and Management
Accounting (pp. 1-4). Springer International Publishing.