ACC2103 Managerial Accounting: Costing, BEP & Safety Margin

This assignment solution focuses on managerial accounting principles, covering the identification and analysis of fixed, variable, and mixed overhead costs. It includes calculations for overhead rates and applied overhead, along with break-even point analysis in both units and sales dollars. The assignment also addresses the margin of safety, explaining its significance and calculation. Practical examples are provided to illustrate the concepts of break-even point and margin of safety. This document is available on Desklib, a platform offering a wide range of study resources including past papers and solved assignments for students.

RUNNING HEAD: MANAGERIAL ACCOUNTING
Accounting

Managerial accounting 2
Question 1
Part a
From the given information, the items that are fixed overhead cost are rent of machine and
salary of the supervisor. The rent is amounted to $10,000 and supervisor’s salary is $35,000.
The reason of their identification is that both the cost remain same in July and August despite
of the increase in the machine hours. In July, each machine clocked 2,000 hours and in
August the figure increased by 20% to 2400 hours. These items are termed as fixed because
there was no change in their value due to the change in machine hours (Heisinger, 2009).
Part b
The variable cost are those cost which varies according to the change in the level of output. In
the given information, items named as Accessories and Utilities are variable overheads, as
they has increased with the increase in number of machine hours. The variable cost per unit
for each item is calculated as follows:
July August
Number of machines 2 2
Machine Hours 4000 4800
Variable costs
Accessories ($) 40000 48000
Variable cost per unit
($) 10 10
Utilities ($) 8000 9600
Variable cost per unit
($) 2 2
Part c
Mixed cost are also known as semi-variable costs which include the components of both the
variable and fixed overhead (Kinney and Raiborn, 2008). From the given information,
machine maintenance cost is a semi-variable overhead. It is identified as follows:

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July August
Machine Hours 4000 4800
Machine maintenance cost ($) 25060 26500
Variable rate per unit ($)
1.
8
Variable overhead ($) 7200 8640
Fixed Overhead ($) 17860 17860
Variable rate = Difference in cost / Difference in machine hours
Part d
Overhead rate = Estimated overhead / Estimated activity level
July August
Total Overhead ($) 118060 129100
Total Machine Hours 4000 4800
Overhead rate 29.52 26.90
Part e
The total applied overhead for September are:
Fixed cost
Rental of machine 10000
Supervisor’s salary 35000
Total Fixed cost 45000
Variable cost
Machine Hours 5500
Accessories ($) 55000
Variable cost per unit
($) 10
Utilities ($) 11000
Variable cost per unit
($) 2
Total Variable cost 66000
Semi variable cost
Machine Hours 5500
Machine maintenance cost
($) 27760
Variable rate per unit ($) 1.8
Variable overhead ($) 9900
Fixed Overhead ($) 17860

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Total Overheads ($)
Rental of machine 10000
Supervisor’s salary 35000
Accessories 55000
Utilities 11000
Machine maintenance cost 27760
Total 138760
Question 2
Part a (i & ii)
Break-even point (in units) Fixed cost / Contribution
BEP 3,058
Break-even point (in sales) Fixed cost / Contribution ratio
BEP ($) 259,926
Part b
Margin of safety
Selling Price per unit £ 85.00
Variable cost per unit
Direct material cost per unit
$
10.00
Direct labour per unit
$
20.83
Overhead per unit
$
23.80
Total Variable cost per unit £ 54.63
Total Fixed Costs £ 92,860.00
Contribution £ 30.37
Contribution ratio £ 0.36
Direct labour per units is calculated as on the basis of information provided. It is said that one
worker will take 50 minutes to make one earpiece set and for that they are been $25 per hour.
So the labour cost is calculated as follows:

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Labour cost per unit = ($25/60)*50 = $20.83. This means each worker will be given $20.83
for making one earpiece set.
Margin of Safety (in
units) Actual units - BEP units
Margin of Safety (in
sales) Actual sales - BEP sales
Actual units 2000
BEP units 3,058
MOS (in units) - 1,058
MOS(in sales dollar) - 89,926
The margin of safety of the firm is negative because the forecasted sales for September is less
than the break-even point.
Part c
Breakeven point
The point where the total revenue is equal to total expenses is known as breakeven point. It is
that situation where there is no profit and no loss (Cafferky, 2010). The formula for
calculating BEP is:
BEP (in units) = Fixed cost / Contribution
BEP (in sales) = Fixed cost / Contribution margin
For example, ABC Company is selling its products at a selling price of $100. The variable
cost is amounted to $60 and the total fixed costs are $1000. The breakeven point in units and
in sales dollars will be calculated as follows:
Selling Price per unit ($) 100
Variable cost per unit ($) 60
Total Fixed Costs ($) 1000
Contribution (S-V) 40
Contribution ratio (S-V)/S (100-60)/100 = 0.4
BEP (in units) = 1000 / 40 = 25 units
BEP (in sales) = 1000 / 0.4 = $2500

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So, if ABC sells 25 units then its revenue will be equal to its total expenses.
Margin of Safety
The difference between the actual sales or units and breakeven sales or units of a company, is
denoted by margin of safety (Kimmel, Weygandt and Kieso, 2010). It is calculated by using
the following formula:
MOS: Actual sales/units – BEP sales/units
For example, XYZ Company’s breakeven point is 20 units or $2000 and the company really
sells 30 units or $6000, then the margin of safety will be:
MOS = $6000 – $2000 = $4000 or
MOS = 30-20 = 10 units.

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References
Cafferky, M., (2010). Breakeven Analysis: The definitive guide to cost-volume-profit
analysis. New York: Business Expert Press.
Heisinger, K., (2009). Essentials of managerial accounting. USA: Cengage Learning.
Kimmel, P.D., Weygandt, J.J. and Kieso, D.E. (2010). Accounting: Tools for business
decision makers. 4th ed. USA: John Wiley & Sons.
Kinney, M. and Raiborn, C., (2008). Cost accounting: Foundations and evolutions. 8th ed.
USA: Cengage Learning.