Management Accounting Assignment: Cost Analysis and Break-Even

This document presents a detailed solution to a management accounting assignment. The assignment is divided into three parts. Part 1 analyzes electricity costs using two different providers, calculating total electricity usage, and comparing costs based on different usage rates and supply charges. Part 2 focuses on cost classification (fixed, variable, and mixed), and then uses the high-low and regression methods to determine cost formulas based on given data including total tables produced, electricity costs, rent, other expenses, raw material costs, and labor costs. Part 3 delves into break-even analysis, margin of safety calculations, and operating leverage, providing insights into how changes in sales revenue impact profitability. The assignment also explores target profit analysis, and the effects of changes in variable costs, fixed costs, and selling prices on profitability. The solution provides tables and calculations to support the analysis and conclusions.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

1MANAGEMENT ACCOUNTING
Assignment Part 1:
Month
Numbe
r of
Days
Table
Model 1
Table
Model
2
Total Tables
(Model 1 +
Model2)
Machinery'
s Electricity
Usage
Other
Electricit
y Usage
Total
Electricity
Usage
(kwh) (kwh) (kwh)
1 31 3200 800 4000 1200 243 1443
2 28 4000 1000 5000 1500 249 1749
3 31 4800 1200 6000 1800 261 2061
4 30 6400 1600 8000 2400 337.9 2737.9
5 31 7600 1900 9500 2850 489 3339
6 30 4400 1100 5500 1650 607.2 2257.2
7 31 6240 1560 7800 2340 638.4 2978.4
8 31 7120 1780 8900 2670 697.5 3367.5
9 30 4800 1200 6000 1800 480 2280
10 31 6400 1600 8000 2400 337.9 2737.9
11 30 7680 1920 9600 2880 246 3126
12 31 8000 2000 10000 3000 400 3400
TOTAL 365 70640 17660 88300 26490 4987 31477
Answer 1:
Particulars
Electricity
Provider 1
Electricity
Provider 2
Total Nos. of Days 365 365
Total Electricity Usage (kwh) 31477 31477
Primary Limit of Usage (kwh) 335.34 255
Usgae rate for First Limit $0.2980 $0.2955
Electricity Expense for 1st Limit $99.93 $75.35
Balance Usage (kwh) 31142 31222
Usage Rate for Balance Usage $0.3001 $0.2875
Electricity Expense for Balance Usage $9,345.58 $8,976.30
Annual Electricity Cost $9,445.51 $9,051.65

2MANAGEMENT ACCOUNTING
Answer 2:
Electricity Provider 1 Electricity Provider 2
Mo
nth
Nu
mbe
r of
Day
s
Total
Elect
ricity
Usag
e
Firs
t
Lim
it
(kw
h)
Rat
e
per
kwh
Bala
nce
Usa
ge
Rat
e
per
kwh
Sup
ply
Cha
rge
per
day
Total
Electr
icity
Cost
Fir
st
Li
mi
t
(k
wh
)
Rat
e
per
kwh
Bala
nce
Usa
ge
Rat
e
per
kwh
Sup
ply
Cha
rge
per
day
Total
Electri
city
Cost
1 31 1443
335
.34
$0.2
980
110
7.66
$0.3
001
$4.
012
556.7
1209
25
5
$0.2
955
118
8
$0.2
875
$5.
000
$541.
27
2 28 1749
335
.34
$0.2
980
141
3.66
$0.3
001
$4.
012
636.5
0669
25
5
$0.2
955
149
4
$0.2
875
$5.
000
$617.
21
3 31 2061
335
.34
$0.2
980
172
5.66
$0.3
001
$4.
012
742.1
7389
25
5
$0.2
955
180
6
$0.2
875
$5.
000
$718.
95
4 30
2737.
9
335
.34
$0.2
980
240
2.56
$0.3
001
$4.
012
941.2
9958
25
5
$0.2
955
248
2.9
$0.2
875
$5.
000
$909.
55
5 31 3339
335
.34
$0.2
980
300
3.66
$0.3
001
$4.
012
1125.
7017
25
5
$0.2
955
308
4
$0.2
875
$5.
000
$1,08
6.37
6 30
2257.
2
335
.34
$0.2
980
192
1.86
$0.3
001
$4.
012
797.0
4151
25
5
$0.2
955
200
2.2
$0.2
875
$5.
000
$771.
35
7 31
2978.
4
335
.34
$0.2
980
264
3.06
$0.3
001
$4.
012
1017.
4856
25
5
$0.2
955
272
3.4
$0.2
875
$5.
000
$982.
70
8 31
3367.
5
335
.34
$0.2
980
303
2.16
$0.3
001
$4.
012
1134.
2545
25
5
$0.2
955
311
2.5
$0.2
875
$5.
000
$1,09
4.57
9 30 2280
335
.34
$0.2
980
194
4.66
$0.3
001
$4.
012
803.8
8379
25
5
$0.2
955
202
5
$0.2
875
$5.
000
$777.
90
10 31
2737.
9
335
.34
$0.2
980
240
2.56
$0.3
001
$4.
012
945.3
1158
25
5
$0.2
955
248
2.9
$0.2
875
$5.
000
$913.
56
11 30 3126
335
.34
$0.2
980
279
0.66
$0.3
001
$4.
012
1057.
7684
25
5
$0.2
955
287
1
$0.2
875
$5.
000
$1,02
1.13
12 31 3400
335
.34
$0.2
980
306
4.66
$0.3
001
$4.
012
1144.
0078
25
5
$0.2
955
314
5
$0.2
875
$5.
000
$1,10
3.91
TO
TAL 365
3147
6.9
1090
2.147
10538
.4688

3MANAGEMENT ACCOUNTING
Assignment Part 2:
Month Total Tables
Total
Electricity
Cost Rent
Other
Expenses
Raw
Material
Costs Labor Cost Total Cost
1 4000 $541 $10,000 $5,642 $10,825 $136,000 $163,009
2 5000 $617 $10,000 $4,000 $12,344 $170,000 $196,961
3 6000 $719 $10,000 $6,540 $14,379 $204,000 $235,638
4 8000 $910 $10,000 $7,000 $18,191 $272,000 $308,100
5 9500 $1,086 $10,000 $7,536 $21,727 $323,000 $363,350
6 5500 $771 $10,000 $7,565 $15,427 $187,000 $220,763
7 7800 $983 $10,000 $11,345 $19,654 $265,200 $307,182
8 8900 $1,095 $10,000 $10,007 $21,891 $302,600 $345,593
9 6000 $778 $10,000 $7,589 $15,558 $204,000 $237,925
10 8000 $914 $10,000 $6,700 $18,271 $272,000 $307,885
11 9600 $1,021 $10,000 $4,152 $20,423 $326,400 $361,996
12 10000 $1,104 $10,000 $8,800 $22,078 $340,000 $381,982
TOTAL 88300 $10,538 $120,000 $86,876 $210,769 $3,002,200 $3,430,384
Requirement 1:
Classification cost are done based on fixed, variable and mixed cost.
Electricity- Electricity is usually regarded as mixed cost, this is because, a fixed rate can
be charged using a base amount. For any usage above the base amount, business will be required
to pay additional variable charge.
Rent is classified as fixed cost as this is considered as periodic charge for using of real
estate by business that is owned by landlord. Sometimes, rent is classified as mixed cost if the
office space is on lease. Fixed cost would be flat monthly rate and variable cost will be treated as
percentage of gross sales.

4MANAGEMENT ACCOUNTING
Other expenses- Many daily expenses of business are accounted as mixed cost as
breaking of such costs involves component of variable and fixed components.
Raw materials and labor- Raw materials and labor are classified as variable cost because
these are direct materials that is involved in the production.
Requirement 2:
4000 5000 6000 7000 8000 9000 10000
$0
$200
$400
$600
$800
$1,000
$1,200
Electricity Cost
Electricity Cost

5MANAGEMENT ACCOUNTING
4000 5000 6000 7000 8000 9000 10000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Other Expenses
Other Expenses
4000 5000 6000 7000 8000 9000 10000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Rent
Rent

6MANAGEMENT ACCOUNTING
4000 5000 6000 7000 8000 9000 10000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Raw Material Costs
Raw Material Costs
4000 5000 6000 7000 8000 9000 10000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
Labor Cost
Labor Cost
Requirement 3:
Cost Formula under High-Low Method:
Month Total Tables
Total
Electricity
Cost Rent
Other
Expenses
Raw
Material
Costs Labor Cost Total Cost
1 4000 $541 $10,000 $5,642 $10,825 $136,000 $163,009
2 5000 $617 $10,000 $4,000 $12,344 $170,000 $196,961

7MANAGEMENT ACCOUNTING
3 6000 $719 $10,000 $6,540 $14,379 $204,000 $235,638
4 8000 $910 $10,000 $7,000 $18,191 $272,000 $308,100
5 9500 $1,086 $10,000 $7,536 $21,727 $323,000 $363,350
6 5500 $771 $10,000 $7,565 $15,427 $187,000 $220,763
7 7800 $983 $10,000 $11,345 $19,654 $265,200 $307,182
8 8900 $1,095 $10,000 $10,007 $21,891 $302,600 $345,593
9 6000 $778 $10,000 $7,589 $15,558 $204,000 $237,925
10 8000 $914 $10,000 $6,700 $18,271 $272,000 $307,885
11 9600 $1,021 $10,000 $4,152 $20,423 $326,400 $361,996
12 10000 $1,104 $10,000 $8,800 $22,078 $340,000 $381,982
TOTAL 88300 $10,538 $120,000 $86,876 $210,769 $3,002,200 $3,430,384
Highest 9600 $363,349.86
Lowest 5000 $196,961.48
Variable Cost
p.u. $36.17
Fixed Cost $16,104.55
Cost Formula
under High-Low
Method y = 36.17x + 16104.55
Cost Formula under Regression Method:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.998647
R Square 0.997295
Adjusted R
Square 0.996957
Standard Error 3375.003
Observations 10
ANOVA
df SS MS F Significanc

8MANAGEMENT ACCOUNTING
e F
Regression 1 3.36E+10 3.36E+10
2949.90
5 1.46E-11
Residual 8 91125182
1139064
8
Total 9 3.37E+10
Coefficient
s
Standard
Error t Stat P-value Lower 95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 19676.77 5063.984 3.88563
0.00463
8 7999.202
31354.3
4 7999.202 31354.34
X Variable 1 36.18607 0.66625 54.31303 1.46E-11 34.6497
37.7224
5 34.6497 37.72245
Month Total Tables
Total
Electricity
Cost Rent
Other
Expenses
Raw
Material
Costs Labor Cost Total Cost
1 4000 $541 $10,000 $5,642 $10,825 $136,000 $163,009
2 5000 $617 $10,000 $4,000 $12,344 $170,000 $196,961
3 6000 $719 $10,000 $6,540 $14,379 $204,000 $235,638
4 8000 $910 $10,000 $7,000 $18,191 $272,000 $308,100
5 9500 $1,086 $10,000 $7,536 $21,727 $323,000 $363,350
6 5500 $771 $10,000 $7,565 $15,427 $187,000 $220,763
7 7800 $983 $10,000 $11,345 $19,654 $265,200 $307,182
8 8900 $1,095 $10,000 $10,007 $21,891 $302,600 $345,593
9 6000 $778 $10,000 $7,589 $15,558 $204,000 $237,925
10 8000 $914 $10,000 $6,700 $18,271 $272,000 $307,885
11 9600 $1,021 $10,000 $4,152 $20,423 $326,400 $361,996
12 10000 $1,104 $10,000 $8,800 $22,078 $340,000 $381,982
TOTAL 88300 $10,538 $120,000 $86,876 $210,769 $3,002,200 $3,430,384

9MANAGEMENT ACCOUNTING
Cost Formula
under
Regression
Method y = 36.18x + 19676.77
Requirement 4:
High-Low Method Regression Model
Nos. of Tables
Variable Cost
p.u. Fixed Cost
Total
Estimated
Cost
Variable
Cost p.u. Fixed Cost
Total
Estimated
Cost
4500 $36.17 $16,104.55
$178,875.7
9 $36.19 $19,676.77
$182,514.1
0
8000 $36.17 $16,104.55
$305,475.6
5 $36.19 $19,676.77
$309,165.3
5
10500 $36.17 $16,104.55
$395,904.1
1 $36.19 $19,676.77
$399,630.5
4
For producing 4500 tables, estimated cost using high low method is $ 178875.79 compared to
regression model where cost stood at $ 182514.10. Cost of producing 4500 tables using
regression model is more than high-low method. Cost of producing 8000 tables under regression
method is reported at $ 309165.35 as against $ 305475.65 under high-low method. While for
producing another 10500 tables, estimated cost of such tables under high-low method is reported
at $ 395904.11 compared to $ 399630.54 under regression model. Therefore, from the above
analysis, it can be observed that estimated cost of producing tables under regression model is
more than estimated cost under high-low end model.

10MANAGEMENT ACCOUNTING
Assignment Part 3:
Requirement 1:
Table 1 Table 2
Particulars
Per
Unit Total
Per
Unit Total Total
Expected Sales (in units) 70640 17660 88300
Selling Price $58 $4,097,120 $60 $1,059,600 5156720
Variable Cost per unit
($36.19
)
($2,556,184.18
)
($36.19
)
($639,046.05
) ($3,195,230)
Contribution Margin p.u. $21.81 $1,540,936 $23.81 $420,554 $1,961,490
Weighted Average
Contribution Margin $22.21
Total Fixed Costs $19,677
Break-Even Sales 886
Break-Even Point in unit 709 177 886
Break-Even Point in $ $41,100.44 $10,629.42 $51,729.87
Requirement 2:
The number of types of tables and dollar values is calculated above that depicts the break
even sales and break-even point. In the event of attaining break even, there are no profit and loss
and business is able to cover only the cost incurred in production. A business would not be
bothered about taxation rate when they are not earning or generating any profits. Therefore,
assumption of tax rate is redundant in the event of break-even sales.
Requirement 3:
Table 1 Table 2

11MANAGEMENT ACCOUNTING
Particulars
Per
Unit Total
Per
Unit Total Total
Expected Sales (in units) 70640 17660 88300
Selling Price $58 $4,097,120 $60 $1,059,600 $5,156,720
Less: Break-Even Point in $ $41,100 $10,629 $51,730
Margin of Safety in $ $4,056,020 $1,048,971 $5,104,990
Margin of Safety in Units 69931 17483 87414
The margin of safety for table 1 is more than table 2 as the figure for table 1 stood at $
4056020 compared to $ 1048971 for table 2.Margin of safety in units for table 1 is more than
table 2.
Requirement 4:
Table 1 Table 2
Particulars
Per
Unit Total
Per
Unit Total Total
Expected Sales (in units) 70640 17660 88300
Selling Price $58 $4,097,120 $60 $1,059,600 $5,156,720
Variable Cost per unit
($36.19
)
($2,556,184.18
)
($36.19
)
($639,046.05
) ($3,195,230)
Contribtion Margin $21.81 $1,540,936 $23.81 $420,554 $1,961,490
Total Fixed Costs ($19,677)
Net Profit $1,941,813
Degree of Operating
Leverage 1.01
Increase in Sales revenue 10%
Increase in Net Profit (in %) 10.10%
Increase in Net Profit (in $) $196,149