BBAC501 Management Accounting Assignment: Profitability Analysis

This assignment, a solution to a Management Accounting assignment, is divided into two parts, addressing key concepts in financial analysis. Part A includes an itemized income statement, breakeven point calculation, and a comparative profitability analysis across different menu items (Salads, Side dishes, Legumes, and Meat), concluding with an interpretation of the results, including margin of safety. Part B focuses on the expected profitability of financial statements and offers recommendations for improvement. The analysis involves detailed calculations of sales, variable costs (labor, utilities, inventory), and fixed costs (kitchen equipment, professional services, insurance, licenses, labor, utilities, and miscellaneous expenses) to determine profit or loss for each menu item. The assignment utilizes the provided data to calculate the breakeven point, recompute the margin of safety, and assess the impact of changes in sales volume on profitability. The final part offers recommendations for cost reduction and promotion strategies to improve the business's financial performance. Overall, the document provides a comprehensive overview of financial statement analysis and profitability assessment in the context of a business.

MANAGEMENT
ACCOUNTING
Table of Contents

Part A....................................................................................................................................................3
1) Itemised income statement.........................................................................................................3
2) Breakeven point calculation.......................................................................................................4
3) Comparative profitability analysis.............................................................................................4
Question 4) Results interpretation.....................................................................................................5
Part B.....................................................................................................................................................8
Expected profitability of financial statement.....................................................................................8
2) Recommendation...........................................................................................................................9
REFERENCES....................................................................................................................................10
Part A
1) Itemised income statement
Particular Salads (S) Side dishes Legumes (L) Meat (M) Total

(SD)
Sales 26880 (280 *
6 *16)
46800 (390 *
6 * 20)
69120 (360 *
6 * 25)
96000 (500 *
6 * 32)
238800
Less:
Variable cost
Labour cost 2855 (15600
/ 1530 * 280)
3976 (15600
/ 1530 * 390)
5098
(15600 /
1530 * 360)
5098
(15600 /
1530 * 500)
15600 (2600
* 6)
Utilities 527 (2880
/1530 * 280 )
734 (2880
/1530 * 390 )
678 (2880
/1530 * 360 )
941 (2880
/1530 * 500 )
2880 (800 *
60% * 6)
Inventory 18798
(102720 /
1530 * 280)
26184
(102720 /
1530 * 390)
24169
(102720 /
1530 * 360)
33569
(102720 /
1530 * 500)
102720
(17120 * 6)
Miscellaneous
expense
220 (1200 /
1530 * 280)
306 (1200 /
1530 * 390)
282 (1200 /
1530 * 360)
392 (1200 /
1530 * 500)
1200 (500 *
40% * 6)
Contribution 4480 15600 38893 56000 116400
Less: Fixed
cost
Kitchen
equipment
and rent
36000 (6000
* 6)
Professional
services
4410
Insurance 2000
License 4800 (400 *
12)
Labour cost 2600
(5200*50%)
Utilities 1920 (800 *
40% * 6)
Miscellaneous
expense
1800 (500 *
60% * 6)
Profit 62870

2) Breakeven point calculation
Breakeven point (BEP): Fixed cost / contribution per unit
Total contribution per unit= 116400 / 9180 [(280 + 390 + 360 + 500) * 6]
= 12.7
BEP= 53530 / 12.7
= 4215 Units
Salad= 4215 / 9180 * 1680
= 771 Units
Side dishes= 4215 / 9180 * 2340
= 1074 Units
Legumes= 4215 / 9180 * 2160
= 992 Units
Meat= 4215 / 9180 * 3000
= 1377 Units
3) Comparative profitability analysis
Particular Salads (S) Side dishes
(SD)
Legumes (L) Meat (M)
Sales 26880 (280 *
6 *16)
46800 (390 *
6 * 20)
69120 (360 *
6 * 25)
96000 (500 *
6 * 32)
Less:
Variable cost
Labour cost 2855 (15600
/ 1530 * 280)
3976 (15600
/ 1530 * 390)
5098
(15600 /
1530 * 360)
5098
(15600 /
1530 * 500)
Utilities 527 (2880
/1530 * 280 )
734 (2880
/1530 * 390 )
678 (2880
/1530 * 360 )
941 (2880
/1530 * 500 )
Inventory 18798 26184 24169 33569

(102720 /
1530 * 280)
(102720 /
1530 * 390)
(102720 /
1530 * 360)
(102720 /
1530 * 500)
Miscellaneous
expense
220 (1200 /
1530 * 280)
306 (1200 /
1530 * 390)
282 (1200 /
1530 * 360)
392 (1200 /
1530 * 500)
Contribution 4480 15600 38893 56000
Less: Fixed
cost
Kitchen
equipment
and rent
6588
(36000 /
9180 * 1680)
9176
(36000 /
9180 * 2340)
8471
(36000 /
9180 * 2160)
11765
(36000 /
9180 * 3000)
Professional
services
807 (4410 /
9180 * 1680)
1124 (4410 /
9180 * 2340)
1038 (4410 /
9180 * 2160)
1441 (4410 /
9180 * 3000)
Insurance 366 (2000 /
9180 * 1680)
510 (2000 /
9180 * 2340)
471 (2000 /
9180 * 2160)
654 (2000 /
9180 * 3000)
License 878 (4800 /
9180 * 1680)
1224 (4800 /
9180 * 2340)
1129 (4800 /
9180 * 2160)
1569 (4800 /
9180 * 3000)
Labour cost 476 (2600 /
9180 * 1680)
663 (2600 /
9180 * 2340)
612 (2600 /
9180 * 2160)
850 (2600 /
9180 * 3000)
Utilities 351 (1920 /
9180 * 1680)
489 (1920 /
9180 * 2340)
452 (1920 /
9180 * 2160)
627 (1920 /
9180 * 3000)
Miscellaneous
expense
329 (1800 /
9180 * 1680)
459 (1800 /
9180 * 2340)
424 (1800 /
9180 * 2160)
588 (1800 /
9180 * 3000)
Profit (5315) 1955 26296 38506
Question 4) Results interpretation
a) Margin of safety= Actual sales (In units) – Breakeven Point sale (In unit)
Salad= 1680 - 771
= 909 Units
Side dishes= 2340 - 1074
= 1266 Units
Legumes= 2160 - 992

= 1168 Units
Meat= 3000 - 1337
= 1663 Units
B) Recomputting margin of safety
Particular Salads (S) Side dishes
(SD)
Legumes (L) Meat (M) Total
Sales 43008 (280
* 12 *16 *
80%)
74880 (390 *
12 * 20 *
80%)
110592 (360
* 12 * 25 *
80%)
153600 (500
* 12 * 32 *
80%)
382080
Less:
Variable cost
Labour cost 14275
(2855 * 2)
7952 (3976
* 2)
10196
(5098 * 2)
10196 (5098
* 2)
42619
Utilities 1054 (527 *
2 )
1468 (734 *
2 )
1356 (678 *
2 )
1882 (941 *
2 )
5760
Inventory 37569
(18798 * 2)
52368
(26184 * 2)
48338
(24169 * 2)
67138
(33569 * 2)
205413
Miscellaneous
expense
440 (220 * 2) 612 (306 * 2) 564 (282 *
2)
392 (392 * 2) 2008
Contribution (10380) 12480 50138 73992 126230
Break even point of each unit
Total breakeven point: Fixed cost / contribution per unit
Total contribution per unit= 126230 / 14688 (2688 + 3744 + 3456 + 4800)
= 8.59
BEP= 126230 / 8.59
= 14695 Units
Salad= 14695/ 14688 * 2688

= 2689 Units
Side dishes= 14695/ 14688 * 3744
= 3745 Units
Legumes= 14695/ 14688 * 3456
= 3457 Units
Meat= 14695/ 14688 * 4800
= 4802 Units
Margin of safety= Actual sales (In units) – Breakeven Point sale (In unit)
Salad= 2688 - 2689
= 1 Units
Side dishes= 3744 - 3745
= 1 Units
Legumes= 3456 - 3457
= 1 Units
Meat= 4800 - 4802
= 2 Units
The result clearly show that due to the decreased sale and the cost remain the same the
organisation is suffering from loss. This will lead to failure in business of the entity
(Lindgren, 2018).
Part B
Expected profitability of financial statement
Particular Salads (S) Side dishes
(SD)
Legumes (L) Meat (M) Total
Sales 59136 (308 * 128700 (429 * 118800 (396 * 211200 (550 * 12 * 517836

12 *16) 12 * 20) 12 * 25) 32)
Less: Variable cost
Labour cost 5710 (31200 /
1683 * 308)
7953 (31200 /
1683 * 429)
7341 (31200 /
1683 * 396)
10196 (31200 /
1683 * 550)
31200
Utilities 1054 (5760
/1683 * 308)
1468 (5760
/1683 * 429)
1355 (5760
/1683 * 396)
1882 (5760 /1683
* 550 )
5759
Inventory 37597
(205440 / 1683
* 308 )
52367 (205440
/ 1683 * 429)
48339 (205440
/ 1683 * 396)
67137 (205440 /
1683 * 550)
205440
Miscellaneous
expense
439 (2400 /
1683 * 308)
612 (2400 /
1683 * 429)
565 (2400 /
1683 * 396)
784 (2400 / 1683 *
550)
2400
Contribution 14336 66300 61200 131201 273037
Less: Fixed cost
Kitchen equipment
and rent
13176 (72000 /
1683 * 308 )
18353 (72000
/ 1683 * 429)
16941
(72000 / 1683
* 396)
23529 (72000 /
1683 * 550)
72000
Professional
services
1776 (9702 /
1683 * 308)
2473 (9702 /
1683 * 429)
2283 (9702 /
1683 * 396)
3171 (9702 / 1683
* 550)
9702
Insurance 732 (4000 /
1683 * 308)
1020 (4000 /
1683 * 429)
941 (4000 /
1683 * 396)
1307 (4000 / 1683
* 550)
4000
License 835 (4560 /
1683 * 308 )
1162 (4560 /
1683 * 429)
1073 (4560 /
1683 * 396)
1490 (4560 / 1683
* 550)
4560
Labour cost 952 (5200 /
1683 * 308)
1325 (5200 /
1683 * 429)
1224 (5200 /
1683 * 396)
1699 (5200 / 1683
* 550)
5200
Utilities 703 (3840 /
1683 * 308 )
979 (3840 /
1683 * 429 )
904 (3840 /
1683 * 396 )
1255 (3840 / 1683
* 550 )
3840
Miscellaneous
expense
659 (3600 /
1683 * 308)
918 (3600 /
1683 * 429)
847 (3600 /
1683 * 396)
1176 (3600 / 1683
* 550)
3600
Profit (4497) 40070 36987 97574 170134
2) Recommendation
This is recommended that Ms Boaz is seeking losses in salads which indicate that
organisation should focus over reducing cost to produce the salad so that the product could

entertain profit instead of losses. Further company can give emphasis over controlling the
variable cost as fixed cost remain the same at all level of production activity so business
entity can increase its production so that overall cost of producing the final product could
come down (Fang and Yang, 2019). Mrs Boaz can also promote its business as this will incur
extra cost ut it will further allow the business entity to maximise its sale in the respective
market. This is recommended that marketing and promotion will further choose digital
marketing as its strategic tool as it will allow the organisation to not only run the campaign
effectively but also to control the same.

REFERENCES
Books and Journal
Fang, L. and Yang, J., 2019. A financing perspective on DEA-based resource allocation and
the aggregate profit inefficiency decomposition. Journal of the Operational
Research Society. pp.1-22.
Lindgren, P., 2018. The Multi Business Model Innovation Approach. River Publishers.