Managerial Accounting Assignment: Cost Analysis, Budgeting, and ROI

This managerial accounting assignment solution addresses several key concepts, including variable and fixed costs, cost analysis using the high-low method, activity-based costing (ABC), cash budgeting, return on investment (ROI), and residual income calculations. The solution provides detailed calculations and explanations for each question, covering topics such as break-even analysis, margin of safety, and contribution margin income statements. Furthermore, the assignment explores special order decisions and the relevant costs to consider. The document offers a comprehensive analysis of various managerial accounting principles and their application in different scenarios, providing a valuable resource for students studying finance.

MANAGERIAL ACCOUNTING

TABLE OF CONTENTS
QUESTION 1.............................................................................................................................3
Part A.....................................................................................................................................3
Part B......................................................................................................................................3
QUESTION 2.............................................................................................................................4
QUESTION 3.............................................................................................................................5
QUESTION 4.............................................................................................................................6
QUESTION 5.............................................................................................................................8
QUESTION 6.............................................................................................................................9
REFERENCES.........................................................................................................................11

QUESTION 1
Part A
a)
If 25000 units are produced, the variable cost per unit will be
Direct material = $13
Direct Labour = $8
Variable manufacturing overhead = $3
Total variable cost per unit = $24
b)
If 16000 units are produced, the variable cost per unit will remain the same as above.
Direct material = $13
Direct Labour = $8
Variable manufacturing overhead = $3
Total variable cost per unit = $24
c)
The variable changes with eth change in eth level of activity but eth per unit cost remains the
same. As the above two cases, when the 25000 units were produced the variable cost was
$600000 ($24 * 25000) and under 16000 units, eth variable cost was $384000 ($24 * 16000).
Thus, variable changes but per unit cost remains the same.
d)
If 18,000 units are produced, the total variable cost will be $24 * 18000 = $432000.
Part B
a)
Copies made Amount charged
5000 $600 January
3000 $400 April
The variable cost per copy if GEM uses the high-low method to analyse costs
Variable cost per copies = (High cost - low cost) ÷ (High number of copies - low number of
copies)
= ($600 -$400) / (5000-3000)

= $200 / 2000 = $0.10
b)
Amount to be paid if 7500 copies are made
When 5000 copies were made, variable cost was 5000 * $0.10 = $500
So, fixed cost is $100
In the similar way, when 3000 copies were made, variable cost = 3000 * $0.10 = $300, so,
fixed cost is $100
Now the total paying cost equal to
= Fixed cost + (High number of copies × Variable cost per copies)
= $100 + (7500 * 0.10)
= $850
QUESTION 2
a)
Traditional:
If Basic uses 140,000 hours to make 70,000 units; the number of machine hours per unit for
Basic = 140,000 hours/70,000 units = 2 hours per unit.
The overhead per unit of Basic = $21 per machine hours × 2 hours per unit = $42.
If Deluxe uses 60,000 hours to make 30,000; the number of machine hours per unit for
Deluxe is 60,000 hours/30,000 units = 2.
The overhead per unit of Deluxe = $21/machine hours × 2 hours/unit = $42.
Basic Deluxe
Direct material $10 $15
Direct labour 60 40
Manufacturing overhead 42 42
Total per-unit cost $112 $97
b)
The overhead rate per activity is the estimated total overhead per activity divided by the
estimated activity.
Total
Overhead
per Activity
Estimated Activity Rate per
Activity
Machine setups $90000 300 setups $300
Machine processing $4000000 200000 machine hours $20
Material requisitions $100000 200 parts $500
Total overhead $4190000

The overhead is being allocated to each activity through the way of multiplying the rate per
unit activity times the activity. Then the total overhead cost is divided by the number of units
for determining the overhead per unit.
Overhead
Allocation
Activity per
Basic
Basic Activity per
Deluxe
Deluxe
Machine setups 100 $30000 200 $60000
Machine hours 140000 2800000 60000 1200000
Parts
requisitions
80 40000 120 60000
Total overhead 2870000 1320000
Number of units 70000 30000
Overhead per
unit
$41 $44
Basic Deluxe
Direct material $10 $15
Direct labour 60 40
Manufacturing overhead 41 44
Total per-unit cost $111 $99
c)
The overhead for Basic was overapplied, and the overhead for Deluxe was underapplied.The
overhead for Basic was overapplied by $1.00 ($42 − $41) per unit(Kim, 2017). The overhead
forDeluxe was underapplied by $2 ($44 − $42) per unit. It is not recommended to switch to
ABC costing for Henry’s kitchen as it will increase the cost per unit of deluxe.
QUESTION 3
a)
Cash budget for the first two quarters of the year
Particulars July August
Cash balance at the beginning of
month 80,395 196696
Receipts

Sales $248,47
0
$251,53
9
Collection from customers 230,524 220,116
Sale of equipment 8000
Total receipts 567,389 668351
Payments
Direct material purchases 120,295 128,832
Direct labor 76,553 74,289
Manufacturing overhead 26,000 24,400
Selling and administration expenses 33,500 33,500
Depreciation included in selling and
administration expenses
Cash payments for purchases 114,345 118,346
Dividend paid 5,500
Total payments 370,693 384,867
Cash balance at the end of month 196,696 283,484
b)
From the evaluation of cash budget prepared for two mentioned period it can be
identified that company has given emphasis on preparing budget appropriately and having
significant knowledge regarding available resources at the end of month. The specified cash
budget for July beginning is 80,395 which has resulted into cash at the end 196696 which is
positive figure. For deriving this amount company has conducted systematic segregation
between receipts and payments. In addition to this, at the end of august is 283484 which is
more than expected cash flow of 80,395. From this comparison it can be stated that Picta
Company’s expected cash flow position is actually higher than estimated which is presenting
positive indication of growth.
QUESTION 4
a)

Particulars
Curren
t Year
Previou
s year
Sales 33,750 24,750
Cost of goods sold 21,938 16,830
Gross profit 11,812 $7,920
Operating Expenses
Wages 8,775 6,188
Utilities 675 $250
Repairs 169 $325
Selling 506 $200
Operating profit $1,687 $957
b)
Return on investment = Profit / Cost of investment *100
Particulars Formula
Current
Year
Previous
year
Profit 1687 957
Cost of investment 4500 1500
Return on
investment
Profit / Cost of
investment *100
=
1687/4500*
100
= 37.488 %
=
957/1500*
100
= 63.8%
c)
Yes it can be interpreted that investing in additional assets is appropriate decisions as 37.48
and 63.8% respectively for current & prior year (Masters, Anwar and Capewell, 2017). Its in
decreasing trend but higher than ideal ratio so it can be stated that its good decisions
d)
Residual income
Particulars Formula Current Year Previous year

Operating Profit 1687 957
Cost of capital 8% 8%
Cost of investment 4500 1500
Residual income
operating Income –( cost of
capital * investment cost) 4.69 7.98
e)
On the basis of residual income it can be stated that management of Forklift Electrical Ltd
has become successful to get positive outcome such as its cost of capital is lesser than its
operating income so firm should invest and go In favor of this decisions (Magni, 2021).
These will help the organization to achieve its objective of earning profitability through
covering expenses incurred on same.
QUESTION 5
a)
Breakeven point in units = Fixed cost/ selling price per unit- variable cost per unit
= 200000/ 150-100
= 4000 units
b)
Margin of safety in dollars
Contribution margin = SP -VC
= 150-100
= 50
Break even sales = Fixed Cost / Contribution margin
= 200000/33.33%
= 6600060
Margin of safety = Current sales- break even sales/ present sales
= 800000- 6600060 / 800000 *100
= 24.99%
= 25% approx
c)
Net sales volume

PV ratio = SP -VC/SP *100
= 150-100/150*100
= 33.33%
Net sales volume = Fixed cost+ desire profit/ PV ratio
= 200000 + 500000/33.33%
= 2,100,210
d)
Contribution margin income statement for July
Particular
s Amount
Sales 2400000
Less:
Variable
cost
1,599,84
0
Contributi
on 800,160
Less: Fixed cost 200000
Profit 600160
e)
From the evaluation of Micol & co. Ltd it can be understood that company should put efforts
in order to increase profits. The steps that can be taken into consideration for increasing
profits are decreasing variable cost through eliminating irrelevant cost of production so that
contribution can be increased (Lee and et.al., 2017). Removing unproductive components
helps company to provide its improved qualitative products with working effectively on cost
structure. This can be derived from having significant improvement actions so that lacking
and unproductive methods can be neglected. In addition to this, it will provide opportunity to
increase price margin in turn revenue can be inclined. The another method which can be
taken into consideration for accomplishing object of net profit is thorough enhancing
customers segments. It can be attained by making appropriate plans for attracting clients
through giving emphasis on quality of offered products. This is one method for achieving the
increased profits by inclining revenue so that economies of scale can as obtained.

QUESTION 6
a)
While considering special order situations, where the company has idle excess capacity to
fulfil the order, the fixed costs of the business must not be taken into consideration this is
because it is irrelevant for decision as same will be incurred irrespective of the fact whether
the special order is accepted or not.
b)
Computation of minimum selling price
Direct materials per unit $ 12
Direct labor per unit - existing $ 20
Additional for modification $ 1.50
Direct Labor per unit $ 21.5
Variable cost per unit $ 33.5
Since the Company has sufficient idle capacity to produce the additional order, no
incremental fixed manufacturing capacity is considered. Thus, the company should accept the
buyers offers of $38 per unit for 10000 desktop computer printers.
c)
The company must consider the non-financial factors like the market situation, availability of
the required labors, raw material, specific requirements of the customer which can be fulfilled
or not. This are some of the important factors to eb accounted for.

REFERENCES
Books and Journals
Kim, Y.W., 2017. Activity based costing for construction companies. John Wiley & Sons.
Lee, B. B. and et.al., 2017. Management of income statement variables to report small
positive earnings numbers. Asian Review of Accounting.
Magni, C. A., 2021. Economic profitability and (non) additivity of residual income. Annals of
Finance, forthcoming.
Masters, R., Anwar, E. and Capewell, S., 2017. Return on investment of public health
interventions: a systematic review. J Epidemiol Community Health.
71(8). pp.827-834.