Managerial Accounting Assignment: Cost Analysis and Strategies

This report provides a detailed analysis of managerial accounting principles, specifically focusing on cost analysis within a manufacturing context. The report examines the costs associated with three manufacturing plants: Northcote, Preston, and Brunswick, including variable costs, contribution margins, and production levels. It ranks the plants based on their contribution per unit and recommends production allocations to maximize benefit. Furthermore, the report acknowledges the limitations of the analysis, particularly the exclusion of fixed costs, and offers suggestions for cost reduction, such as exploring alternative labor methods and materials, and reducing overhead expenses. The analysis is supported by references to relevant sources on manufacturing cost reduction strategies.

MANAGERIAL ACCOUNTING 1
MANAGERIAL
ACCOUNTING

MANAGERIAL ACCOUNTING 2
Answer 4:
Part a:
The following is the table for the calculations:
Max 240 310 310
Particulars
Northcote
Manufacturing
Plant
Northcote
Manufacturin
g Plant
Preston
Manufacturing
Plant
Selling price 700 700 700
Less: variable cost 340 345 330
(sum of variable
material, labour
and overhead
costs)
Contribution 360 355 370
Number of units
produced 170 190 185
Contribution per unit 2.117647059 1.868421053 2
Ranking on the basis
of max contribution
per unit 1 3 2

MANAGERIAL ACCOUNTING 3
Particulars
Units
manufactured
on the basis of
the max
contribution
per unit Amounts in $
Units
produced
Northcote
Manufacturing Plant 240*260
1,24,80
0.00
62,40
0.00
Preston
Manufacturing Plant 310*260
1,46,35
2.63
80,60
0.00
Northcote
Manufacturing Plant 27*260
12,48
6.49
7,00
0.00
2
6.92
Total
1,50,00
0.00
The above table suggests that the company would be able to derive maximum benefit or pofit
if it produces from the Northcote manufacturing plant, then from Preston manufacturing plant
and then from Brunswick manufacturing plant. This is on the basis of the contribution from
each one unit of the output.

MANAGERIAL ACCOUNTING 4
The limitation in this is the fact that it fails to take into account the fixed costs since the table
considers only the relevant costs.
Part b:
It is recommended that the company manufactures the desired output of the product from:
Northcote plant- 62400 units
Preston plant- 80,600 units
Brunswick plant- 7000 units
Part c:
The limitation in this is the fact that it fails to take into account the fixed costs since the table
considers only the relevant costs (Apriso, 2017).
The following are few of the suggestions:
 The company could look for an alternative method of labour which would help in the
reduction of the labour cost. It could go for overtime labour and cheap labour.
 The company could go for substitutes of the direct materials being used but the
substandard material must not be used. There should be no compromise on the quality
of the material (Small business chron, 2017).
 The expenses that are overhead under the overhead costs such as the ones associated
with the monitoring the activities of the factory or the plant must be reduced such as
reducing the building costs, staff costs etc.

MANAGERIAL ACCOUNTING 5
References:
6 Ways to get Smart and Cut Manufacturing Costs. (2017). Manufacturing Transformation
Blog. Retrieved 30 August 2017, from http://www.apriso.com/blog/2014/01/6-ways-to-
get-smart-and-cut-manufacturing-costs/
Ideas for Cost-Reduction in Manufacturing. (2017). Smallbusiness.chron.com. Retrieved 30
August 2017, from http://smallbusiness.chron.com/ideas-costreduction-manufacturing-
59401.html