University Accounting Project: Financial Analysis and Reporting

This report provides a comprehensive analysis of accounting principles and their practical application in various business scenarios. It begins with an examination of different proposals for a company, evaluating their strengths and weaknesses based on financial data and potential impact on sales and profitability. The report then delves into factory capacity, assessing the implications of accepting additional orders and the importance of utilizing resources efficiently. Furthermore, it includes detailed calculations of overhead allocation rates using both labor hours and machine hours, providing insights into cost management and pricing strategies. The report concludes with a computation of the minimum selling price for a product, considering both variable costs and production units, offering a practical guide for financial decision-making. The report also includes references to relevant accounting literature and online resources to support its findings.

Assessment 2: Project based
on cases and problems

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
1. Drafting report on selecting proposals highlighting strengths and weaknesses.................1
Question 2........................................................................................................................................3
2. Factory capacity..................................................................................................................3
Question 3........................................................................................................................................4
3. Calculation of overheads....................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting is required by management to take better and effective decisions for the
betterment of company. Present report deals with different organisations using accounting
concepts to resolve problems and make decisions in effectual manner. Moreover, calculation of
overheads are made along with producing units. Thus, manufacturing organisations are able to
take enhanced decisions by complying with accounting concepts.
Question 1
1. Drafting report on selecting proposals highlighting strengths and weaknesses
To,
The CEO
Harry Dubcek
Subject: Three proposals highlighting strengths and weaknesses
Sir,
Food R Us Ltd is required to increase profitability and has various proposals before it.
The strengths and weaknesses of each of the proposals are as follows-
1. The proposal is provided by Production Manager that quality of food product may be
made by increasing sales. This can be done by increasing expenditure on advertisement
campaign by $75000 and thus, increment in sales would be 25 %. This would also increase
quality improvement on variable cost of $8. The present situation of selling price is $200 per
unit and sales is 30000 units (Bennett and James, 2017). On the other hand, variable cost is $75
per unit. Increment of variable cost by $8 will work total cost to $83.
Total sales
Sales units * Selling price per unit
= 30,000 * 200
= 60,00,000
This is cleared that advertising campaign expenditure will have positive effect on sales
of Food R Us Ltd as $75000 will provide increment of sales by 25 %. In relation to this,
variable cost will be added in it.
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Variable cost = 75 per unit + 8 increment
= 22,50,000 + 2,40,000
= 24,90,000
Thus, the increase in value of variable cost, firm will gain more sales. There are some
weaknesses of this proposal such as increasing advertising cost will add to more cost to
organisation as marketing will be made which increases expenditures and moreover, quality
improvement will be initiated by organisation and as such, more costs will be injected (Libby,
2017). However, this proposal is quite good as sales would maximise by 25 %.
2. Second proposal is provided by accountant in which advertising expenditure would
increase by $185000. On the other hand, price will increase by $15. This proposal of
incrementing advertisement expenditure and that of selling price would not affect sales volume.
It means that selling units would remain same but per unit selling price will be increased
leading to more profit. The advertisement expenses would maximise by $185000 which is more
than first proposal. Thus, profits will be injected as price will be 15. In current line of product,
selling price is $200 per unit.
Current price = 200
Increased price = 215
Sales will be = 30000 * 215
= 64,50,000
Thus, it can be seen that profit will be maximised up to 4,50,000. But advertisement
expenses is $185000 which is more and as such, this profit will be reduced. The negative effect
of this proposal is that customer focus on getting commodities of better quality at low prices
(Agrawal and Cooper, 2017). Implementing $15 on per unit of sale would hike prices. This is
not liked by customers and they will drop their plan to purchase and eventually sales would
consecutively go down. Thus, this proposal is not good for company.
3. The third proposal is given by Marketing Director and is listed in that promotion of
food processor is required as this would help Food R Us Ltd to achieve more sales. In this
proposal, rebate of $10 should be offered on food processors in second quarter of year. This was
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proposed as 9000 units were sold in that period but rebate would provide more sales to
organisation by 15000. But for this, advertising would increase by $60000 in the first quarter.
The strength of this proposal is that company will be able to enlarge customer base as rebate
would be availed by them. This type of marketing would be advantageous to business as sales
will be maximised up to high extent. Positive effect on sales will be there because consumer
may easily purchase the commodity (Kim, Schmidgall and Damitio, 2017).
Moreover, more customers will be attracted to purchase the same and sales would
increase in the best possible manner. On the other hand, advertisement expenses is also required
to be maximised by $60000. This will help company to generate good quantum of sales. The
weaknesses of this proposal is that giving rebate would benefit organisation in short-run and in
long-run, it has to make profit to recover amount spent on rebate. Moreover, advertising
expenditure would also be increased and as such, profit will get affected. But there will be
positive effect of this proposal in short-run as more sales would be accomplished.
Question 2
2. Factory capacity
1) In the first case, Ozzi Comp Ltd would not have to expand for more capacity as it is
not utilising full capacity of the same. Thus, it is required that additional products could be made
and order should be needed as it has capacity for producing the same. The total cost of per unit
when organisation is producing 5000 is 120 but from the calculation it is arrived that total cost is
85. This is arrived as all fixed and variable cost of selling and administrative are treated as 0 as
they remain same whether more or less production is done (Dumay and Baard, 2017).
Justification-
It can be justified from the above calculation that fixed and variable in context of selling
and administration costs are taken as 0 because these remain same irrelevant of the total
production achieved by the company. Thus, these are mixed costs which are treated as 0 and as
such, from total cost of 120, fixed and variable costs which consists of 35 are deducted from it.
Thus, we get 85 as total cost.
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The company can take lower bid and still can attain profit. For additional 30000 units,
profit obtained = 1,00,000 * 30 = 30,00,000 – 25,50,000 = 4,50,000 as additional costs are not
used in it. Thus, profit margin of 30 can be obtained and 30000 can be sold at 85+30= 115.
Hence, total bid is price is 30000 * 115 = 34,50,000.
2) In the second case, Ozzi Comp Ltd capacity is given as 70,000 units. When additional
units of 30000 will be added in it would be insufficient for company to produce as it will go
beyond its capacity and as a result, organisation would need to invest in fixed costs. This would
not be good for company and thus, it should not accept this bid. Hence, it is cleared that Ozzi
Comp Ltd should go with first bid. This is evident from the fact that it has capacity to produce
additional units and also fully utilisation of resources may be done. Furthermore, profits are also
earned in effective manner. Thus, it should go with the first bid to earn profits and utilise
resources up to high extent.
Justification-
Fixed costs will be incurred by company when additional 30000 units will be produced
and as such, it will be beyond its normal capacity. Thus, in order to meet extra units, investment
would be needed in fixed expenditures which will be unprofitable for the organisation.
Question 3
3. Calculation of overheads
1. Calculation of overhead allocation rate on labour
Greengo Ltd is faced with producing farming equipment for order of 80 plows for
supplier. For computing overhead allocation rate on labour, first step is to add all overheads. In
this question, only indirect costs of $148,600 is given that is excluding of direct materials and
direct labour. Next step is to put formula-
Overhead allocation rate = Total overhead / Direct labour hours
= 148600 / 39200
= 3.79
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This means that for producing every unit, 3.79 overhead is required to that unit. Next step
is to multiply overhead calculation rate to direct labour hours that will be needed to made
product (Zhong and Li, 2017). Thus, 39200 * 3.79 = 148568.
2. Calculation of overhead allocation rate on machine hours
This involves same step for calculation machine hours that was calculated above for
labour hours. Indirect cost is $148,600.
Overhead calculation rate = Total overhead / Machine hours
= 148600 / 14000
= 10.61
Next step is to multiply overhead rate with machine hours. Thus, 14000 * 10.61 =
148540
3. Computation of cost of the special order on the basis of labour hours
Cost of special order can be calculated by dividing indirect costs with direct labour hours.
Indirect costs are 148600 and direct labour hours are 2100. Thus, 148600 / 2100 = 70.76 labour
hours are required to produce 80 plows.
4. Calculation of cost of the special order on the basis of machine time
There is same step for calculating machine time that was applied in labour hours
computation. Indirect costs are 148600 and machine hours are 750. Thus, 148600 / 750 = 198
hours are required to attain special order of 80 plows.
5. Computation of minimum price per plow
For calculating minimum price per plow, it is required to follow the formula
Minimum price per unit = Total variable costs / Number of units
Total variable costs include direct material and direct labour costs such as 289,800 + 490,000 =
779800. While number of units is 80 (Markgraf). Therefore, substituting in formula,
= 779800 / 80
= 9747.5
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Thus, minimum price per plow is 9747.5 required to produce 80 plows and Greengo Ltd
can accept this price for achieving production.
CONCLUSION
Hereby it can be concluded that accounting plays crucial role in company for achieving
certain aims in the best possible way. The overhead calculations and other computations of
various problems are quite relevant to company especially for manufacturing concern. This may
be achieved by resolving problems through utilising accounting by the management and take
enhanced decisions.
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REFERENCES
Books and Journals
Agrawal, A. and Cooper, T., 2017. Corporate governance consequences of accounting scandals:
Evidence from top management, CFO and auditor turnover. Quarterly Journal of
Finance. 7(01). p.1650014.
Bennett, M. and James, P. eds., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Dumay, J. and Baard, V., 2017. An introduction to interventionist research in accounting. The
Routledge Companion to Qualitative Research Methods. pp.265-283.
Kim, M., Schmidgall, R. S. and Damitio, J. W., 2017. Key Managerial Accounting Skills for
Lodging Industry Managers: The Third Phase of a Repeated Cross-Sectional
Study.International Journal of Hospitality & Tourism Administration. 18(1). pp.23-40.
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion
to Behavioural Accounting Research (pp. 42-54). Routledge.
Zhong, Y. and Li, W., 2017. Accounting Conservatism: A Literature Review. Australian
Accounting Review. 27(2). pp.195-213.
Online
Markgraf, 2018 How to Determine Minimum Selling Price With Relevant Costing [Online]
Available Through: <https://yourbusiness.azcentral.com/determine-minimum-selling-price-
relevant-costing-29493.html>
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