Cost Accounting Assignment: Profitability Analysis and Solutions

This cost accounting assignment presents a detailed analysis of various business scenarios, focusing on profitability, cost behavior, and decision-making. The assignment includes calculations for sales, variable costs, fixed costs, and contribution margins under different conditions. Question 1 analyzes the current profitability of a product, while Question 2 explores the impact of different sales proposals on net profit. Question 3 investigates the required sales volume to achieve a target profit after a cost reduction. Question 4 determines the maximum allowable increase in advertising expenses. Question 5 examines the profitability of a special order, considering variable costs and contribution margins. Finally, Question 6 provides a recommendation based on the financial analysis, suggesting the acceptance of the sales manager's proposal due to its highest profit potential and contribution margin. The assignment demonstrates the application of cost accounting principles to make informed business decisions.

Cost Accounting

Cost Accounting
Table of Contents
Question 1..................................................................................................................................2
Question 2-A..............................................................................................................................2
Question 2-B..............................................................................................................................3
Question 3..................................................................................................................................3
Question 4..................................................................................................................................4
Question 5..................................................................................................................................4
Question 6..................................................................................................................................5
1

Cost Accounting
Question 1
Particulars $/
unit
$ $
Sales (45000 units) 10 450000
less: Variable Cost
Direct Material 2.00 90000
Direct Labor 1.74 78300
Variable Manufacturing Overhead 0.30 13500
Sales Commission 0.60 27000
Shipping 0.12 5400
Billing and others 0.04 1800 216000
Contribution 5.20 234000
less: Fixed Cost
Fixed Manufacturing Overhead 85000
Selling Expense (Advertising, Salaries) 120000
Administrative Expense (Salaries and other) 48000 253000
Net Profit/(Loss) (0.42) (19000)
Question 2-A
Particulars $/unit $ $
Sales (75000 units) 8 600000
less: Variable Cost
Direct Material 2.00 15000
0
Direct Labor 1.74 13050
0
Variable Manufacturing Overhead 0.30 22500
Sales Commission 0.80 36000
Shipping 0.12 9000
Billing and others 0.04 3000 351000
Contribution 3.32 249000
less: Fixed Cost
Fixed Manufacturing Overhead 85000
Selling Expense (Advertising, Salaries) 12000
0
Administrative Expense (Salaries and other) 48000 253000
Net Profit/(Loss) (0.05) (4000)
The loss under Vice President’s proposal will be $4000.
2

Cost Accounting
Question 2-B
Particulars $/unit $ $
Sales (60000 units) 12 720000
less: Variable Cost
Direct Material 2.00 120000
Direct Labor 1.74 104400
Variable Manufacturing Overhead 0.30 18000
Sales Commission 1.44 64800
Shipping 0.12 7200
Billing and others 0.04 2400 316800
Contribution 6.72 403200
less: Fixed Cost
Fixed Manufacturing Overhead 85000
Selling Expense (Advertising, Salaries) 220000
Administrative Expense (Salaries and other) 48000 353000
Net Profit/(Loss) 0.84 50200
The profit under sales manager’s proposal will be $50200.
Question 3
Particulars $/unit $ $
Sales (48000 units) 10 480000
less: Variable Cost
Direct Material 1.3 62400
Direct Labor 1.74 83520
Variable Manufacturing Overhead 0.3 14400
Sales Commission 0.6 28800
Shipping 0.12 5760
Billing and others 0.04 1920 196800
Contribution 5.9 283200
less: Fixed Cost
Fixed Manufacturing Overhead 85000
Selling Expense (Advertising, Salaries) 120000
Administrative Expense (Salaries and other) 48000 253000
Net Profit/(Loss) 0.63 30200
To manage a profit of $30200 and after reducing direct material cost per unit by 70 cents, the
units to be sold must be 48000.
3

Cost Accounting
Question 4
Particulars $/unit $ $
Sales (60000 units) 10 600000
less: Variable Cost
Direct Material 2 120000
Direct Labor 1.74 104400
Variable Manufacturing Overhead 0.3 18000
Sales Commission 0.6 36000
Shipping 0.12 7200
Billing and others 0.04 2400 288000
Contribution 5.2 312000
Less: Fixed Cost
Fixed Manufacturing Overhead 85000
Selling Expense (Advertising, Salaries) 152000
Administrative Expense (Salaries and other) 48000 285000
Net Profit/(Loss) 0.45 27000
The advertisement expense can be increased up to $ 152000 from $120000 i.e. the increment
allowed up to $32000.
Question 5
Particulars Normal Order Special Order
$/unit $ $ $/unit $ $
Sales (45000 units + 9500 units) 10 450000 8.41 79895
less: Variable Cost
Direct Material 2 90000 2 1900
0
Direct Labor 1.74 78300 1.74 1653
0
Variable Manufacturing Overhead 0.3 13500 0.3 2850
Sales Commission 0.6 27000 0 0
Shipping 0.12 5400 0.24 2280
Billing and others 0.04 1800 216000 0.03 285 40945
Contribution 5.2 234000 38950
Total Contribution 272950
less: Fixed Cost
Fixed Manufacturing Overhead 85000
Selling Expense (Advertising,
Salaries)
120000
Administrative Expense (Salaries
and other)
48000
4

Cost Accounting
Insurance Fee 5700 258700
Net Profit/(Loss) 0.32 14250
The price of $8.41 per unit must be quoted on the overseas special order.
Question 6
The proposal put by sales manager must be accepted in order to earn a profit of $50200
which is highest among other proposals. The contribution margin of $403200 is also the
highest when compared to other proposals. It is due the increased realization per unit of $12
and an increase in sale to 60000 units. The sales manager understands that by giving higher
percent to the commission agent and by improving visibility of a product by increasing
advertisement, the contribution margin can be increased. High contribution margins are then
enough to cover the fixed expenses incurred by the company.
5