Management Accounting: Cost Analysis, CVP, and Decision Making

This assignment provides solutions to various management accounting problems. It includes calculating variable and fixed costs using the high-low method, preparing a schedule of cost of goods sold and an income statement, performing relevant cost analysis for make-or-buy decisions, and conducting cost-volume-profit (CVP) analysis to determine break-even points and profitability. The solutions demonstrate the application of management accounting principles in cost estimation, financial statement preparation, and decision-making scenarios.

Management
accounting

Contents
Contents...........................................................................................................................................2
Question 1........................................................................................................................................1
1...................................................................................................................................................1
2...................................................................................................................................................1
3...................................................................................................................................................1
Question 2........................................................................................................................................3
(i)..................................................................................................................................................3
(ii)................................................................................................................................................4
Question 5........................................................................................................................................4
(a).................................................................................................................................................4
(b).................................................................................................................................................5
(c).................................................................................................................................................5
Question 6........................................................................................................................................6
(a).................................................................................................................................................6
(b).................................................................................................................................................6
(c).................................................................................................................................................6
(d).................................................................................................................................................6
(e).................................................................................................................................................7
(f).................................................................................................................................................7

Question 1
1.
500 x 80% = 400 beds
400 x P40 x 30 = P 480,000 costs per month
500 x 60% = 300 beds
High: 400. . . . . . P 480,000
Low: 300 . . . . . . P 405,000
= (P 480,000 - P 405,000) / (400 - 300)
= P 75,000 / 100
= P 750 variable cost per occupied bed per month
a) Estimate the variable cost per occupied bed on a daily basis using the high-low method.
= P 750 / 30 days
= P 25 Variable cost per occupied bed on a daily basis.
b) Estimate the total fixed operating costs per month using the high-low method.
= P 480,000 - (P 750 x 400)
= P 180,000 Fixed costs per month.
2.
500 x 70% = 350 beds
Fixed Cost = P180,000
Variable Costs = 350 x P 750 = P 262,500
Total operating costs = P 180,000 + P 262,500
Total operating costs = P 442,500
3.
Given:

Initial Activity Level = 6800 units
Initial Total Variable Cost = $125,188
Initial Total Fixed Cost = $164,152
For a New activity level = 7100 units, compute:
a. Total variable cost
= (Initial Total Variable Cost/Initial Activity Level) x New activity level
= ($125,188/6800) x 7100 = $130,711
b. Total fixed cost
= Initial total fixed cost
= $164,152
c. Total Cost
= Total variable cost + Total fixed cost
= $130,711 + $164,152
= $294,863
d. Average variable cost per unit
= Total variable cost/New activity level
= $130,711/7100
= $18.41

e. Average fixed cost per unit
= Total fixed cost/New activity level
= $164,152/7100
= $23.12
f. Average total cost per unit
= Total cost/New activity level
= $294,863/7100
= $41.53
Question 2
(i)
Schedule of cost of goods sold
Particulars Amount
opening stock of raw material -
raw material purchased 310000
(-) raw material closing stock 40000
raw material consumed 270000
Cleaning supplies, factory 6000
Direct labour costs 80000
Indirect labour costs 136000
Maintenance, factory 47000
Rental cost facilities 52000
utilities cost factory 36000
Depreciation, production equipment 75000
Insurance, factory 9000
(-) WIP closing stock 30000
cost of goods manufactured 680000
(20000 units in june quarter)
cost of goods manufactured unit 34000
Cost of goods sold account
Particulars Amount
opening stock of finished goods -

cost of goods manufactured 680000
total goods available for sale 680000
(-) closing stock 4000 units 136000
cost of goods sold 544000
(ii)
Income statement for the quarter ending
june30
Particulars Amount Amount
sales revenue (16000 units) 975000
(-) COGS
opening stock of finished goods -
cost of goods manufactured 680000
total goods available for sale 680000
(-) closing stock of 4000 units 136000
cost of goods sold 544000
gross profit 431000
(-) operating cost
selling and admin salaries 90000
deprecistion office equipment 18000
rent selling and admin 13000
utilities selling and admin 4000
advertising 200000
travel sales 60000
total operating cost 385000
net profit 46000
Question 5
(a)
Statement of Relevant Cost
Make Buy
Direct Material $210,000 -
Direct Labor $150,000 -
Variable Manufacturing Overhead $45,000 -
Fixed Manufacturing Overhead(Traceable) $30,000 -
(90,000 × 1/3)
Purchase Cost (15,000 units @$35 p.u.) - $525,000

Total Relevant Cost $435,000 $525,000
The engines should be produced instead of buying and the offer should not be accepted as it
leads to increase in costs by $90,000($525,000 - $435,000).
(b)
Statement of Relevant Cost
Make Buy
Cost of making $435,000 -
Cost of buying - $525,000
Opportunity Cost - segment margin for the new product $150,000 -
Total Relevant Cost $585,000 $525,000
The engines should be bought instead of producing and the offer should be accepted as it leads to
savings in costs by $60,000($585,000 - $525,000).
(c)
Incremental cost- Incremental expenditures are the additional charges related to the
production of one additional product, and it only includes those prices that are expected to affect
the outcome of a specified requirement, while the remaining expenditures are deemed irrelevant.
It is defined as an additional expense faced by a company as a consequence of pricing increases
associated with production, updating tools and facilities, or adding a secondary product, for
instance.
Opportunity cost- When a writer refers to an asset's "opportunity price," it typically mean
the valuation of the asset's second-highest-valuable substitute utilisation. If you spending a
good amount of money going to the theatres, for example, you can't invest extra money reading
reference textbooks, and also can't spent the money on something else. If reading this paper is
your next best step after seeing the movie, the opportunity cost of seeing the movie is the sum
initially spent the fun you missed up on by not reading the literature.

Question 6
(a)
Sales = 3000000
(-) variable cost = 2025000 (300000+1387500+150000+60000+127500)
Contribution = 975000
(b)
Breakeven point in units = fixed cost / contribution per unit
= 855000/6.5
= 131538.45
Fixed cost = 855000 (90000+240000+525000)
Contribution per unit = 975000/150000
= 6.5
(c)
Sales = 3184615
(-) variable cost = 2149615
Contribution = 1035000
(-) fixed cost = 855000
Profit = 180000
(d)
Sales = 17 (20-15%)
(-) variable cost = 13.5
Contribution = 3.5
Breakeven point in units = fixed cost / contribution per unit
= 855000/3.5
= 244285.71

(e)
Sales = 20
(-) variable cost = 15.75
Contribution = 4.25
Breakeven point in units = fixed cost / contribution per unit
= 855000/4.25
= 190000
(f)
The percentage of contributing profitability is the difference between a company's
revenues and operating expenses. This proportion represents the total amount of resources
available to help permanent expenses. A high amount of contributory profitability is ideal
because higher the fraction, more and more revenue each item sold can cover all other expenses.