Managerial Accounting: Performance Evaluation and Financial Planning

This assignment provides solutions to managerial accounting problems. It includes the preparation of an income statement using the contribution approach, cost behavior analysis using the high-low method to determine variable and fixed costs, and cost-volume-profit (CVP) analysis covering contribu...Read More

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Authors Note:

MANAGERIAL ACCOUNTING
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Table of Contents
Question 1:.................................................................................................................................2
Question 2:.................................................................................................................................2
Question 3:.................................................................................................................................4
Question 4:.................................................................................................................................6

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Question 1:
The 4x4 Shop
Income Statement – Seat Liner Department
For the First Quarter of 2016
Particulars Amount
Sales $ 700,000
Less: Cost of goods sold $ 250,000
Selling expenses 70,000
Administrative expenses $ 36,250
Contribution $ 343,750
Less: fixed cost
Selling expenses $ 125,000
Administrative expenses $ 108,750
Net Income $ 110,000
Question 2:
Machine Hours Total Overhead Costs
March 60,000 $216,800
April 50,000 194,000
May 70,000 239,600
June 80,000 262,400
Utilities (V) $54,000

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Supervisory salaries
(F)
62,000
Maintenance (M) 78,000
Total overhead costs $194,000
a) Particulars Amount
Total overhead cost $ 262,400
Less:
Utilities (V) $ 86,400
Supervisory salaries (F) $ 62,000
Portion of overhead for June $ 114,000
b) Particulars
Maintenance
cost Machine-hours
High Point
$
114,000 80,000
Low Point
$
78,000 50,000
Change observed
$
36,000 30,000
Variable Cost Value
Change in cost/change in cost 1.2
Total fixed cost
Total Maintenance 78,000
Less variable cost 60000
Fixed cost 18,000
c) Particulars Amount Amount

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Utilities $ 59,400
Supervisory salaries $ 62,000
Maintenance cost $ 66,000
Variable cost $ 18,000
Fixed cost $ 84,000
Total overhead cost $ 205,400
Question 3:
Particulars Value
Contribution Margin ratio Sales – variable expense / sales
Contribution Margin ratio 1200000 – 800000 / 1200000
Contribution Margin ratio 33.33%
Particulars Value
Break even units Fixed cost / (price – variable)
Break even units (300000/ (60-40))
Break even units 15,000 units
Particulars Value
Increment in Unit 100 units
Operating Income Selling Price – Variable cost
Operating Income (60 – 40) = 20
Increase in Operating Income 100 * $20 = $2000

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Particulars Value
Units to be Sold (target profit + fixed cost) / (Selling Price –
Variable cost)
Units to be Sold (125,000 + 300,000) / (60 –40)
Units to be Sold 425,000 / 20
Units to be Sold 21,500
The number of units to be sold for target profit of 125,000 is at
the levels of 21,500 units.
Particulars Value
Margin of Safety Sales – BEP in sales
Margin of Safety 1,200,000 – (15,000*60)
Margin of Safety 1,200,000 – 900,000
Margin of Safety 300,000
Hence, Margin of safety value is at the level of $300,000
Particulars Value
Operating leverage Contribution margin / Operating Income
Operating leverage 400,000 / 100,000
Operating leverage 4
The company’s degree of operating leverage is at the level of 4

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Particulars Value
Target unit selling (Target profit * (1-tax) + Fixed Cost) /
(Selling Price – Variable cost)
Target unit selling (84,000 * (1-30%) +300,000) / (60 –40)
Target unit selling 420,000 / 20
Target unit selling 21,000 units
Hence, the organisation needs to sell 21,000 units for attaining
the after tax profit of $84,000.
Question 4:
Cas
e
Units
Sold Sales Variable
Expenses
Contribution
Margin Per Unit
Fixed
Expenses
Operating
Income
(Loss)
1 9,000 $270,000 $162,000 $ 12 $90,000 $18,000
2 14,000 $350,000 $
140,000 $15 $170,000 $40,000
3 20,000 $600,000 $280,000 $16 $285,000 $35,000
4 5,000 $160,000 $
90,000 $ 14 $82,000 ($12,000)
Case Sales Variable
Expenses
Ave
Contribution
Margin %
Fixed
Expenses
Operating
Income (Loss)
1 $450,000 $270,000 40% $115,000 $65,000
2 $200,000 $130,000 35% $60,000 $10,000
3 $700,000 $140,000 80% $470,000 $90,000
4 $300,000 $90,000 70% $225,000 ($15,000)

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