Managerial Accounting: Profitability and Bid Price Analysis Report

This report analyzes profitability improvement strategies suggested by different managers at Pacific Telemet, a high-end phone manufacturer, and evaluates bid prices for Go-Go-Grow Ltd, an electric toy manufacturer. For Pacific Telemet, suggestions from the production, sales, and marketin...Read More

Running head: ACCOUNTING FOR MANAGERS
Accounting for managers
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Answer 1....................................................................................................................................2
Introduction............................................................................................................................2
(a) Production manager’s suggestion................................................................................2
(b) Sales manager’s suggestion.........................................................................................3
(c) Marketing director’s suggestion..................................................................................4
Conclusion..............................................................................................................................4
Answer 2....................................................................................................................................5
Introduction............................................................................................................................5
Go-Go-Grow’s present profitability.......................................................................................5
(a) Bid price if the annual factory capacity is 90,000.......................................................6
(b) Bid price if the annual factory capacity is 75,000.......................................................7
Conclusion..............................................................................................................................8
Reference....................................................................................................................................9

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Answer 1
Introduction
Pacific Telemet manufactures high end phone with dual sim cards. Recently the
company became concerned regarding increase the profitability of the business. Therefore,
the CEO asked the managers from different departments to provide suggestions for increasing
the profitability. The report will analyse the suggestions provided by the managers will
consider the best suitable one for improving the profitability (Cooper, 2017).
(a) Production manager’s suggestion
As per the suggestion of production manager additional advertising expenses for the
amount of $ 60,000 and variable quality improvement cost of $ 36 per unit may increase 30%
sales volume.

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From above computation it can be recognised that the production manager’s
suggestion will reduce the profitability to 30.13% as against the last year’s profit of 34.78%.
If other factor like break even sales and margin of safety is considered it can be recognised
that the break even sales that is the unit production required for earning profit is 5000 and the
margin of safety that is the production volume exceed the BES is 67.95% (Cafferky, 2017).
(b) Sales manager’s suggestion
As per the suggestion of sales manager additional advertising expenses amounting to
$ 120,000 can increase the selling price of the product by $ 60. However, it will reduce the
sales volume by 12% (Havaldar & Cavale, 2017).
From above computation it can be recognised that the sales manager’s suggestion will
increase the profitability to 38.02%. If other factor like break even sales and margin of safety
is considered it can be recognised that the break even sales required for earning profit is 3600
and the margin of safety is 65.91%.

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(c) Marketing director’s suggestion
Marketing director suggested that the promotional campaign of $ 40 rebate to 1st 2500
buyer in addition with advertising expenses of $ 50,000 will increase the sales volume by
2000 units.
From above computation it can be recognised that the managing director’s suggestion
will increase the profitability to 35.49%. If other factor like break even sales and margin of
safety is considered it can be recognised that the break even sales required for earning profit
is 4208.33 and the margin of safety is 69.94% (Marota et al., 2017).
Conclusion
From above facts and discussion it can be concluded that with regard to profitability
aspect the suggestion given by the sales manager seems best as it will increase the profit level
to maximum among all the decision provided. However, from MOS aspect, the suggestion

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given by marketing director is best, but as the main concern is to increase profitability the
suggestion provided by sales manager shall be accepted.
Answer 2
Introduction
Go-Go-Grow Ltd that manufactures electric toy has recently got a contract for
providing 20,000 toys from Mantel Ltd. however, while considering the acceptance of the
order the company needs to consider its limited capacity (Christ & Burritt, 2015)..
Go-Go-Grow’s present profitability

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(a) Bid price if the annual factory capacity is 90,000
When the factory capacity is 90,000 units the company can manufacture additional
20000 toys along with existing (5000*12) = 60,000 units. Incremental profit for 20,000 units
will be 63.89% whereas the total profit margin will be 53.47%.
With 90,000 annual capacity of the factory the company is not required to make any
adjustments for existing 60,000 units production. However, for maintaining the current level
of profit that is 50% the company will require to bid $ 620 per unit for new order of 20,000
units (Christ & Burritt, 2015).

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(b) Bid price if the annual factory capacity is 75,000
When the factory capacity is only 75,000 units the company will have to reduce the
existing production to (75,000 – 20,000) = 55,000 units for accommodating new order for
20,000 units. However, the company will loss the opportunity of selling the 5,000 units of
existing production if 20,000 new orders is accepted (Biondi et al., 2017). However, it will
reduce the overall profit level of the company to 49.17%.
To maintain the present profit level of 50% the company shall bid $ 744.40 per unit
for the new order of 20,000 units.

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Conclusion
It can be concluded from the above that with 90,000 capacities the company will be
able to earn higher profit if it is compared with 75,000 capacities. Opportunities that can be
achieved with taking up new order are they may get further order from Mantel Ltd. However
the disadvantage is the company have to lose the existing sales for 5000 units.

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Reference
Biondi, L., Gulluscio, C., Rossi, A. & D'Alessio, L., (2017). Accounting costs without a cost
accounting system: the case of a small Italian winery of excellence. Piccola
Impresa/Small Business, (3).
Cafferky, M.E., (2017). Estimating retail breakeven using markup pricing. Management
Accounting Quarterly, 18(2).
Christ, K.L. & Burritt, R.L., (2015). Material flow cost accounting: a review and agenda for
future research. Journal of Cleaner Production, 108, pp.1378-1389.
Cooper, R., (2017). Supply chain development for the lean enterprise: interorganizational
cost management. Routledge.
Havaldar, K.K. & Cavale, V.M., (2017). Sales and Distribution Management, 3/e: Text &
Cases. McGraw-Hill Education.
Marota, R., Ritchi, H., Khasanah, U. & Abadi, R.F., (2017). Material Flow Cost Accounting
Approach for Sustainable Supply Chain Management System. International Journal
of Supply Chain Management, 6(2), pp.33-37.