University Managerial Accounting Case Study: Production & Sales

This case study analyzes the managerial accounting challenges faced by Maharjan Manufacturing Pty Ltd, a medium-sized company with two manufacturing plants. The assignment focuses on increasing production and allocating it between the two plants to enhance sales and production in 2018. The analysis includes calculating contribution margins under normal and overtime conditions, determining break-even points for each plant, and calculating operating income at various production levels. The study recommends an optimal production plan, allocating production based on capacity and contribution margin, and identifies limitations such as the lack of detailed worker information. The solution emphasizes the importance of cost accounting principles in making informed decisions about production allocation and maximizing profitability. The assignment utilizes various financial calculations, including break-even point analysis and contribution margin analysis, to provide a comprehensive understanding of the case.

MANAGERIAL ACCOUNTING
NAME OF THE STUDENT
NAME OF THE UNIVERSITY
STUDENT ID
AUTHOR NOTE

Executive Summary –
Maharjan Manufacturing Pty Ltd is the medium sized company
having its administration office based in Sydney, NSW. The
company is engaged in the operating and manufacturing of
generators since the year 1990. the company has 2
manufacturing plants those are based in Port Macquarie and
Coffs Harbour, NSW. The manager of the company wants to
enhance the sales and production in the year 2018. the main
issue of the case is to decide about increasing the production
and allocation of the increased production to 2 units.

Analysis
Calculation of contribution margin
Normal condition –
The contribution margin or the $ contribution per unit is selling price of the
product reduced by the variable cost per unit for the product (Pettersson &
Segerstedt, 2013). Contribution signifies the sales revenue portion that is not
absorbed by the variable cost and is left for covering up the fixed cost. In the
above solution, the contribution margin is computed through deducting the
variable manufacturing cost, variable marketing cost and variable manufacturing
overtime cost from the sales price per unit (Drury, 2013).
Overtime condition –

Break – even point –
Break – even point is the point at which the total cost of the product equals to
the total revenue of the product. At the break – even point there is no profit or
no loss as the revenue and costs are equal. The break – even point is calculated
through dividing the fixed cost per unit of the product by variable cost per unit
of the product (Potkany & Krajcirova, 2015).
Here in the given case, total fixed cost for Port Macquarie plant is $ 14,112,000
and the variable cost per unit $ 258. Therefore, break – even point will be $
14,112,000 / $ 258 = 54,698 units approximately. On the other hand, total fixed
cost for Coffs Harbour plant is $ 67,96,800 and the variable cost per unit $ 306.
Therefore, break – even point will be $ 67,96,800 / $ 306 = 22,212 units
approximately (Guarini, 2013).

Findings –
In the given case, total fixed cost for Port Macquarie plant is
$ 14,112,000 and the variable cost per unit $ 258.
Therefore, break – even point will be $ 14,112,000 / $ 258 =
54,698 units approximately. On the other hand, total fixed
cost for Coffs Harbour plant is $ 67,96,800 and the variable
cost per unit $ 306. Therefore, break – even point will be $
67,96,800 / $ 306 = 22,212 units approximately (Guarini
2013).

Calculation of operating income at 96,000 units production

Allocation of 192,000 units production –
Optimal production plan is to produce 120,000
units at Port Macquarie and balance (192000 – 120000) =
72,000 units in Coffs Harbour. The reason behind this
allocation is that it will utilize the maximum capacity that
is (300 days * 400 units) for Port Macquarie and the
contribution per unit for this plant are higher than Coffs
Harbour.

Contribution margin –
The contribution margin is higher while 120,000 units are produced at Port
Macquarie unit and 72,000 units are produced at Coffs Harbour unit. Therefore,
the operating income will also be higher at this production allocation level as
the fixed costs remain unchanged irrespective of the units produce at each
plant.

Action items or limitations –
The main problems faced during completing the task was
that no details regarding the workers for any of the plants.
However, before taking the final decisions regarding
allocation of additional production details regarding the
workers would have been provide more clear picture as the
payment to workers is one of the major expenses for
manufacturing units. Further, possibilities may be there
that the workers for one plant is easy to engage and may
be difficult for the other. Therefore it was the limitation
while making the analysis and providing the findings.

Reference –
DRURY, C.M. (2013). Management and cost accounting.
Springer.
Guarini, G. (2013). Technological break-even point and labour
productivity: theoretical and empirical aspects. Journal of
Applied Economic Sciences, 8(2), pp.198-209.
Pettersson, A.I. & Segerstedt, A. (2013). Measuring supply
chain cost. International Journal of Production
Economics, 143(2), pp.357-363.
Potkany, M. & Krajcirova, L. (2015). Quantification of the
volume of products to achieve the break-even point and
desired profit in non-homogeneous production. Procedia
Economics and Finance, 26, pp.194-201.