ACCT20076: Analysis of Laurie Manufacturing's Financial Performance

This report provides an executive summary, analysis, findings, and action items regarding Laurie Manufacturing Pty Ltd, a company that manufactures grass collection attachments. The company faces negative operating income due to high variable costs and potential environmental liabilities. The analysis includes break-even revenue calculations under different variable cost reduction scenarios (60% and 70%), and an operating income analysis. Findings reveal that reducing variable costs is crucial for profitability, with a 60% reduction leading to a break-even revenue of $7,662,000 and a 70% reduction increasing operating profit to $6,315,000. The report emphasizes the importance of adhering to ethical and environmental standards as per the Institute of Management Accountants. Action items recommend steps to reduce variable costs and address environmental concerns to improve the company's financial performance. The report references various academic sources to support its findings and recommendations.

ACCT 20076 Foundation of
management accounting

Executive summary
Laurie manufacturing Pty Ltd. is working in the industry of manufacturing grass collection attachment which
are used for the lawn Mowers. The company is having the problem where they are having negative operating
income in the current year. The company wants to reduce the cost which is associated with the production of
the product of company. There are two options that are proposed to the company which helps in reducing the
cost of the company’s production. The company is also having issue where they have founded that company is
having potential environmental liabilities. So, in the current issue it is founded that the company is having
problem where they may hamper some of the environmental law in the coming future. Also, the company is
having problem where the variable cost of the company is very high due to which they are having losses. So,
the variable cost of the company has to be maintained and lowered for this purpose.

Analysis
 Calculation of the break-even revenues for the year
2018
Contribution = Sales – Variable cost
= 15000000-9750000
= $5250000
 Contribution per unit = Sales-Variable Cost/ No. of
units
= $5250,000/30,000
= $175/Unit
 Breakeven point = Fixed Cost/Contribution per unit
= 5670000/175
= 32,400 Units
 Breakeven revenue = Breakeven units*Selling
price
= 32400*$500
= $16200,000

I) Calculation of the Break-even revenue for the year
2018 of variable cost is reduced by 70%
 Current variable cost = $9750,000
 Variable cost after reduction = $9750000 – 70% of
9750,000
= $2925,000
 Calculation per unit = Sales – Variable cost/ No. of units
= $15000000 - $2925,000/30000
 Breakeven point = Fixed cost/ Contribution per unit
= 5670,000/402.5
= 14087 units
 Break even revenue = BE Units* Selling price
= 14087*500
= $ 7043,500

II) Calculation of BE revenue for 2018 if the variable
cost is reduced by 60%
 Current variable cost = $9750000
 Variable cost after the reduction = $9750000 – 60% of 9750000
= $3900000
 Contribution per unit = Sales – Variable cost/ No. of Units
= $15000000 - $3900000/30000
= $ 370/ Unit
 Break even point = Fixed cost/ Contribution per Unit
= 5670000/370
= 15,324 Units
 Break even revenue = Break even units* Selling price
= 15324*500
= $7662000

Calculation of operating income
 Calculation of Operating income for 2018, if
variable cost was reduced by 70%
Sales = 30000*500 =
15000,000
(Variable cost) =
(29525,000)
Contribution =
12075,000
(Fixed cost) =
 Calculation of Operating income for 2018, if variable
cost was reduced by 60%
Sales = 30000*500 =$15000,000
(Variable cost)
=(3700,000)
Contribution =
11300000
(fixed Cost) =
(5670000)
Operating Income = $5630000

Findings
 Through the above analysis this has been founded that the company is was having a great amount of variable cost that is if this
would have decreased then it would help the company to come in profit (Bittar-Godinho & Masiero, 2019).
 It is seen that if the break-even revenue of the company is reduced by 60% the company would be able to gain the break-even
revenue of $ 7662000. Also, if this is reduced by 70 % the company would be able to increase the operating profit that would
come to $6315,000 (Walter, et. Al., 2015).
 Hence this can be concluded that the main factor that is bringing the companies operating profit to negative is variable cost
(Martínez-López, et. al., 2019).
 The comment of Martins is related to the ethical standard that the company needs to follow so as to comply with the requirement
of environment law in the country (Tronvoll, et. Al., 2018).
 The institute of management accountants provides that the companies that are working in the country has to follow the standards
that are formulated for the purpose of bringing competence, confidentiality, integrity and credibility (Reid, & Plank, 2016).
 It is concluded that if the failure to comply with this occurs then it would result in disciplinary action against the company. The
company here has to comply with the standard that are set by the Institute of Management accountants (Lüdeke-Freund, et. al.,
2017).

Action items
 For the purpose of bringing the company into profit and to reduce the variable cost that is related to the
production and manufacturing. The company is required to take various steps so as to bring the cost of
production at lower amount (Adekola & Sergi, 2016). The company is having the problem where if the
company does not consider the cost of environmental related issues. The company has to consider the
environmental cost in the future hence the company should make the provisions for this in the current year.
 So the company should take the immediate action for the purpose of the maintaining variable cost of the
company and bringing the company operating income to minimum (Rangan & Bagai, 2017).

References
 Rangan, V. K., & Bagai, S. (2017). Sampark Foundation: Transforming Primary Education in India.
 Adekola, A., & Sergi, B. S. (2016). Global business management: A cross-cultural perspective.
Routledge.
 Martínez-López, F. J., Merigó, J. M., Gázquez-Abad, J. C., & Ruiz-Real, J. L. (2019). Industrial
marketing management: Bibliometric overview since its foundation. Industrial Marketing Management.
 Walter, A., Ritter, T., Coviello, N., & Otte, N. (2015). Who Needs Business Experience? How Pre-
Foundation Innovation Activities Impact Early Exports. In Academy of Management Proceedings (Vol.
2015, No. 1, p. 18438). Briarcliff Manor, NY 10510: Academy of Management.
 Bittar-Godinho, J. S., & Masiero, G. (2019). Political CSR and legitimation via corporate foundation: a
public management program. Social Responsibility Journal.

Thank you