Managerial Accounting: Cost Analysis and Sales Mix Strategy

This managerial accounting assignment analyzes the profitability of deluxe and standard entry doors, evaluating manufacturing costs and overhead allocation. The solution begins by outlining the current cost system, explaining manufacturing overhead, and examining machine-related costs. It then uses activity-based costing (ABC) data to compute cost driver rates and revised manufacturing overhead costs, determining the profitability of the deluxe door. The analysis reveals that the deluxe door is not as profitable as initially estimated due to disproportionate overhead allocation. Finally, the assignment considers required strategies for sales mix, focusing on market demand, capacity constraints, and customer willingness to pay, while acknowledging that costs do not influence the sales mix strategy. The solution references several academic sources to support its findings.

Running head: MANAGERIAL ACCOUNTING
Managerial accounting
Name of the student
Name of the university
Author note

1MANAGERIAL ACCOUNTING
Table of Contents
a. Current system....................................................................................................................2
b. Explanation for manufacturing overhead...........................................................................2
c. Machine related cost...........................................................................................................2
d. Usage of activity based costing data...................................................................................2
e. Profitability of deluxe door.................................................................................................3
f. Required considerations for sales mix strategy..................................................................4
Reference....................................................................................................................................5

2MANAGERIAL ACCOUNTING
a. Current system
1. Estimated manufacturing cost per unit for deluxe entry door is = ($ 180 + $ 80) = $
260
Estimated manufacturing cost per unit for standard entry door is = ($ 130 + $ 120) =
$ 250
2. Estimated profit per unit for deluxe entry door is ($ 650 - $ 260) = $ 390
Estimated profit per unit for standard entry door is ($ 475 - $ 250) = $ 225
b. Explanation for manufacturing overhead
Currently, the support manufacturing costs are allocated on the basis of direct labour
labours. As the deluxe doors manufactured by using the systems of new robotics, it seems
that less amount of direct labour is required for manufacturing each unit of the deluxe entry
door (Edmonds et al., 2016).
c. Machine related cost
The machine related costs are high probably due to the the results for purchasing new
robotics equipments for the purpose of deluxe products. Though the total machine hours for
each of the product is same, the each deluxe product uses (300,000 mh / 50,000 units) = 6
machine hours. On the other hand, each standard products use (300,000 mh / 400,000 units) =
0.75 machine hours. By analysing the machine hours for each unit instead of total machine
hours, the explanation can be clearer (Marshall, 2016).
d. Usage of activity based costing data
1. Computation of cost driver rate

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Set up activity = $ 500,000 / 500 set up = $ 1,000 per set up
Machine related activity = $ 44,000,000 / 600,000 machines = $ 73.33 per machine hour
Packing activity = $ 50,00,000 / 250,000 shipments = $ 20 per shipments
2. Computation of revised manufacturing overhead cost
Deluxe entry door = [($ 1,000 * 400) + ($ 73.33 * 300,000) + ($ 20 * 50,000)] / 50,000 units
= $ 468 per unit
Standard entry door = [($ 1,000 * 100) + ($ 73.33 * 300,000) + ($ 20 * 200,000)] / 400,000
units = $ 65.25 per unit
3. Computation of revised total cost
Deluxe entry door = $ 180 + $ 468 = $ 648 per unit
Standard entry door = $ 130 + $ 65.25 = $ 195.25
e. Profitability of deluxe door
No, deluxe is not profitable as compared to the original estimation as the deluxe door
needs the disproportionate share of overhead activities that is the robotic systems and
therefore, more part of the overhead cost are allocated to deluxe door while using the ABC
system (Tsai et al., 2013).
Revised profit for deluxe entry door = $ 650 - $ 648 = $ 2 per unit
Revised profit for standard entry door = $ 475 - $ 195.25 = $ 279.75 per unit
Current estimated profit per unit for deluxe entry door = $ 650 - $ 260 = $ 390
Current estimated profit per unit for standard entry door is $ 475 - $ 250 = $ 225

4MANAGERIAL ACCOUNTING
f. Required considerations for sales mix strategy
The strategy for sales mix is required considerations of the future as well as current
market demands for 2 types of the entry doors. Various other considerations involve the
constraints related to capacity with regard to the robotics systems, facilities and other
equipments (Öker & Adıgüzel, 2016). The reality, that the customers are likely to pay more
for deluxe doors shall be considered while evaluating the profits for each product. However,
the costs do not influence the sales mix strategy.

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Reference
Edmonds, T. P., Edmonds, C. D., Tsay, B. Y., & Olds, P. R. (2016). Fundamental
managerial accounting concepts. McGraw-Hill Education.
Marshall, D. (2016). Accounting: What the numbers mean. McGraw-Hill Higher Education.
Öker, F., & Adıgüzel, H. (2016). Time‐driven activity‐based costing: An implementation in a
manufacturing company. Journal of Corporate Accounting & Finance, 27(3), 39-56.
Tsai, W. H., Chen, H. C., Leu, J. D., Chang, Y. C., & Lin, T. W. (2013). A product-mix
decision model using green manufacturing technologies under activity-based costing. Journal
of cleaner production, 57, 178-187.