Cost and Profit Analysis for Maharjan Manufacturing Pty Ltd

This report presents a cost and profit analysis for Maharjan Manufacturing Pty Ltd, focusing on the operational efficiency of its production facilities. The analysis compares the cost structures of the Port Macquarie and Coffs Harbour plants, evaluating the contribution margin per unit under both normal and overtime production scenarios. The report identifies that the Coffs Harbour plant incurs higher production costs, making the Port Macquarie plant more cost-effective. It calculates break-even points and suggests that the production of 192,000 generators should be optimized between the two plants to maximize operating income. The report also highlights limitations, such as the exclusion of transportation costs and other overheads, and suggests actions to mitigate these issues, including focusing production in Port Macquarie. The report concludes by emphasizing the need for continuous evaluation and optimization of production processes to improve profitability, along with the consideration of transportation costs for finished goods and other overheads.

Foundations of
Management Accounting

Executive Summary
 From the overall evaluation of the expenses and revenues contribution margin per unit
is derived for the both production facilities under normal and overtime production.
 The calculation indicate that use of Port Macquarie is much beneficial for the company
rather than Coffs Harbour, as it increases cost of production.
 The limitation is derived in the assessment, which is compensated with actions to
reduce the negative impact of the identified limitations.

Calculating the contribution margin per unit under
normal production and under over time production
Contribution margin per unit under normal production
Particulars Port Macquarie Coffs Harbour
Selling Price $ 450.00 $ 450.00
Manufacturing variable cost per unit $ 216.00 $ 264.00
Marketing variable cost per unit $ 42.00 $ 42.00
Contribution margin (Revenue - Variable) $ 192.00 $ 144.00
Contribution margin per unit under overtime production
Particulars Port Macquarie Coffs Harbour
Selling Price $ 450.00 $ 450.00
Manufacturing variable cost per unit $ 216.00 $ 264.00
Marketing variable cost per unit $ 42.00 $ 42.00
Extra variable cost $ 24.00
Contribution margin (Revenue - Variable) $ 192.00 $ 120.00

Identifying the break-even point for both the plants
under normal production and under over time production
Breakeven point under Normal Production
Particulars Port Macquarie Coffs Harbour
Fixed cost manufacturing $ 10,800,000 $ 3,456,000
Fixed cost marketing $ 6,840,000 $ 3,340,800
Total fixed cost $ 17,640,000 $ 6,796,800
Contribution margin $ 192.00 $ 144.00
Breakeven point (Fixed cost / contribution
margin)
73,500.00 47,200.00
Breakeven point under Overtime Production
Particulars Port Macquarie Coffs Harbour
Fixed cost manufacturing $ 8,640,000 $ 4,320,000
Fixed cost marketing $ 5,472,000 $ 4,176,000
Total fixed cost $ 14,112,000 $ 8,496,000
Contribution margin $ 192.00 $ 120.00
Breakeven point (Fixed cost / contribution
margin)
73,500.00 70,800.00

Showing the operating income of 96,000
generator are produced at each plant
Particulars Port Macquarie Coffs Harbour
Selling Price $ 43,200,000 $ 43,200,000
Manufacturing variable cost $ 20,736,000 $ 25,344,000
Manufacturing fixed cost $ 8,640,000 $ 4,320,000
Marketing variable cost $ 4,032,000 $ 4,032,000
Marketing fixed cost $ 5,472,000 $ 4,176,000
Extra variable cost $ 2,304,000
Total cost $ 38,880,000 $ 40,176,000
Operating income $ 4,320,000 $ 3,024,000

Allocating 192,000 generators between two plants to
maximise the operating income of Maharjan Manufacturing
Pty Ltd
Particulars Port Macquarie Coffs Harbour
Selling Price $ 51,840,000 $ 34,560,000
Manufacturing variable cost $ 24,883,200 $ 20,275,200
Manufacturing fixed cost $ 10,368,000 $ 3,456,000
Marketing variable cost $ 4,838,400 $ 3,225,600
Marketing fixed cost $ 6,566,400 $ 3,340,800
Extra variable cost $ 1,036,800
Total cost $ 47,692,800 $ 30,297,600
Operating income $ 4,147,200 $ 4,262,400

Findings
 From the overall evaluation it could be understood that conducting higher production in Coffs
Harbour plant will only increase expenses of the company, while declines the operating income
generated from the operations. In addition, the total operating income after the increment in
production process has relevantly declined, which was preciously not present during the normal
process.
 Consequently, the over usage of Coffs Harbour plant needs to be omitted, as extra variable
expenses are incurred due to the over use of the facility. Furthermore, the calculation sheds light on
the low usage, which is been conducted on Port Macquarie.
 Therefore, the decline in production of generators on Coffs Harbour needs to be conducted, while
increment in production can be done on Port Macquarie. This move could help in improve the level
of production while reduce the cost incurred from production.
 The major limitations that could arise from the analysis is the transportation cost of finished goods,
which is not considered in the calculation. The evaluation of other overheads cost also needs to be
evaluated, as it might increase the expenses from production function (Hatch et al., 2017).

Action items/limitations
 The major limitation that could be identified from the overall analysis is the usage of
Coffs Harbour facility for increased production units, which is directly affecting the
overall production cost of the company. With the continuous production of in Port
Macquarie the identified limitation of high expenses can be reduced.
 In addition, the second limitation could arise from the non-evaluation of transportation
cost of finished goods from the facility to stores. The inclusion of cost could eventually
help in detecting the expenses and income generated from the production in both
facilities.

References
 van Asseldonk, M., van Wagenberg, C. P. A., & Wisselink, H. J. (2017). Break-even
analysis of costs for controlling Toxoplasma gondii infections in slaughter pigs via a
serological surveillance program in the Netherlands. Preventive veterinary
medicine, 138, 139-146.
 Hatch, M. D., Daniels, S. D., Glerum, K. M., & Higgins, L. D. (2017). The cost
effectiveness of vancomycin for preventing infections after shoulder arthroplasty: a
break-even analysis. Journal of shoulder and elbow surgery, 26(3), 472-477.

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