ACCT6004 Management Accounting Case Study: Decision Making

This document presents a comprehensive case study solution for a Management Accounting assignment, focusing on cost analysis and decision-making within a business context. The solution includes detailed calculations for the breakeven point, margin of safety, and operating income under different scenarios. It analyzes various cost structures, including variable and fixed costs, and evaluates the impact of advertising and campaign expenses on profitability. The case study applies cost accounting techniques such as CVP analysis and provides a memo recommending the optimal plan based on financial outcomes. Furthermore, the solution references relevant academic sources to support its findings and recommendations, offering a practical application of management accounting principles to real-world business challenges. The analysis covers multiple plans, comparing their effects on operating income and providing a rationale for the chosen strategy.

Running Head: MANAGEMENT ACCOUNTING 0
Management Accounting
(Student Name)

MANAGEMENT ACCOUNTING 1
Table of Contents
Question A.......................................................................................................................................2
Question B.......................................................................................................................................3
Question C.......................................................................................................................................3
Question D.......................................................................................................................................4
Question E.......................................................................................................................................6
Question F:.......................................................................................................................................7
Memo...............................................................................................................................................7
References........................................................................................................................................8

MANAGEMENT ACCOUNTING 2
Question A
Calculation of breakeven point
Per unit Total
Selling price $ 20.00 $ 1,039,500.00
Less:
Variable cost $ 16.00 $ 831,600.00
Contribution (Sales -
variable cost) $ 4.00 $ 207,900.00
Fixed cost $ 168,000.00
Breakeven point (Fixed
cost / contribution) $ 42,000.00 $ 840,000.00
Question B
Margin of Safety

MANAGEMENT ACCOUNTING 3
Actual Sales - Break-even Point (Noreen, Brewer &
Garrison, 2011) = 19.19%
The margin of safety of the company is 19.19% which represent that the company has
earned enough profit margins while continuing its business. it represent that Sports Strength is
going great with its business and earn sufficient proof that motivate them to grow in more
efficient manner. Therefore, it represent that the overall performance of the company is going
great.
Question C
Operating Income
Sales 1039500
Less: Cost of Goods Sold 795217.5
Sales Commission 62370
Total Variable cost 857587.5
Contribution Margin 181912.5
Less Fixed Expenses
Selling 116500
Administrative 51500 168000

MANAGEMENT ACCOUNTING 4
Operating Income 13912.5
Question D
First Plan
Operating Income
Sales 1039500
Less: Cost of Goods Sold 795217.5
Sales Commission 62370
Total Variable cost 857587.5
Contribution Margin 181912.5
Less Fixed Expenses
Selling 116500
Advertisement 10000

MANAGEMENT ACCOUNTING 5
Administrative 51500 178000
Operating Income 3912.5
Second Plan
Operating Income
Sales 1143450
Less: Cost of Goods Sold 795217.5
Cost of Campaign 5000
Sales Commission 45738
Total Variable cost 845955.5
Contribution Margin 297494.5
Less Fixed Expenses
Selling 116500
Administrative (including
salary) 61500 178000

MANAGEMENT ACCOUNTING 6
Operating Income 119494.5
Question E
In the first plan the company is decided to spent $10000 on advertisement and the
operating income is occurring still low due to the reason, the other cost is also increases
however, the overall sales of the company is expected to be similar to the previous sales volume
that affected overall operating income of the company to the certain extent.
Question F:
Memo
TO: Sports-Strength
FROM: (Student Name)

MANAGEMENT ACCOUNTING 7
DATE- August 03, 2019
In order to analyze the first plan and second part it is highly recommended the company
should adopt second plan due to the reason if the company will adopt first plan then the
operating income that is expected to earn is 3912 however, if the company will adopt second
plan, then the expected earning operating income will be 119494 which is higher than first plan.
The main reason behind such differences is due to the reason according to the plan A the
company is planning to expand $10000 on advertisement with targeting existing consumers.
However, the sales of the company are not affected from such method that only enhance the cost
of the company rather than give original profit. Whereas, according to the second plan, the
company will spend its $5000 on campaign and enhance its salaries by $ 22000 however, the
company also reduces the overall commission to 4% of the company. With such method the
company will able to target new consumers that will help the company to enhance its sales which
increases the operating income of the company in an efficient manner.
Therefore, it is recommended to the management of the company that they should adopt
Plan B to achieve great success in the market (Bititci, U., Cocca, P., & Ates, 2016).

MANAGEMENT ACCOUNTING 8
References
Bititci, U., Cocca, P., & Ates, A. (2016). Impact of visual performance management systems on
the performance management practices of organisations. International Journal of Production
Research, 54(6), 1571-1593.
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2011). Managerial accounting for managers.
McGraw-Hill Irwin.