[Type the company name]

Accounting for Managers

Assignment 2
Student Name and ID

14
Answer 1:
Proposal 1:
Particulars Amount ($)
Sales 2800000

Cost:

Variable Cost 1000000

Fixed Cost 400000

Fixed selling and administrative costs 425000

Variable Selling and administrative costs 600000

PROFIT 375000

The above table demonstrated that if the first proposal is implemented, the organization will have

a net profit of $375,000. Earlier, the net profit was estimated to be $300,000. Hence, the first

proposal will help in increasing the profit level. However, it must be considered that the

accountant has enhanced the selling price which might have a negative influence on the

consumer perception regarding that product. Consequently, the demand may decline in long term

(Fields, 2002).

Proposal 2:
Particulars Amount ($)
Sales 2800000

Cost:

Variable Cost 1000000

Fixed Cost 400000

Fixed selling and administrative costs 425000

Variable Selling and administrative costs 600000

PROFIT 375000

According to the production manager, profitability can be increased by focusing on the quality

control as well as promotional activities instead of increasing the selling price of the product. In

this case, the profit has been estimated same as the first proposal. However, significant risk is

associated with this option as the result of the promotional strategy is uncertain (Epstein & Lee,

2011).

Proposal 3:
Particulars For First three months Rest Period
Sales $1200000 $1820000
Cost
Variable Cost $500000 $700000
Fixed selling and $300000
administrative costs
Variable Selling and $500000 $700000
administrative costs
Fixed manufacturing Costs $400000
PROFITS $400000

If the third proposal of the sales manager is implemented, the profit will be $400,000. In this

strategy, the sales manager has focused on discount which will help in enhancing the sales

volume. The decrease in the selling price will be compensated by the significant increase in the

sales volume (Hansen & Mowen 2000).

Analyzing the three options, it can be stated that the third proposal is most appropriate for the

company.
Answer 2:
Sales (units) 150000

Selling price (per unit) $ 15.00

Revenue $ 2,250,000.00

Total cost (per unit) $ 12.50

Total cost $ 1,875,000.00

Profit $ 375,000.00

Situation 1:

Additional

Sales (units) 150000 40000

Selling price (per $ 15.00 $ 15.00

unit)

Revenue $ 2,250,000.00 $ 600,000.00

Total cost (per $ 12.50 $ 10.50

unit)

Total cost $ 1,875,000.00 $ 420,000.00

Profit $ 555,000.00

Situation 2:

Additional

Sales (units) 150000 30000

Selling price $ 15.00 $ 15.00

(per unit)

Revenue $ 2,250,000.00 $ 450,000.00

Total cost ( $ 12.50 $ 10.50

per unit)

Total cost $ 1,875,000.00 $ 315,000.00

Profit $ 510,000.00

The above calculations depict that when the capacity of Tassie is 200,000 units per year and the

profit will be estimated as $555,000. When the capacity of the factory will be 180,000 units per

year the profit will be $ 510,000 (Dopson & Hayes 2009).

Answer 3:
Budget is an important financial estimate for anticipating the future requirements as well as

performance of the organization. Budget helps in forecasting the future requirement of capital by

estimating sales volume, demand and cost of manufacturing activities. Preparation of budget

helps in effective allocation of the available resources (Epstein & Lee, 2009). The estimated

profit from the budget helps in setting target for the organizational performance and individual

role of the employees for achieving it.

The management of an organization may analyze the past trends in order to develop new budget.

Budget significantly contributes in monitoring the future operations of the company considering

the budgeted figures as a basis of evaluation. It is necessary to adopt a flexible approach for

preparing budget as the real activities may deviate from the budgeted activities due to the change

in circumstances (Gazely & Lambert 2006). It is important to prepare a realistic budget which

considers provision for change in economic scenario or accidents. Positive variance with the

budget demonstrates that the organization is performing effectively. On the other hand, negative

variance clearly indicates the business firm has failed to operate effectively for meeting the

minimum level of expectation (Fields, 2002).

Answer 4:
Estimation of the overhead allocation rate

Labor hour rate $12.70014

Indirect cost $98400

Labor cost $17780.19

Material Cost $33810

Other Cost $6667.571

Overhead allocation rate $5.534249

Estimation of total cost for special order

Material cost for special order $43810

Labor cost $17780.19

Other Cost $6667.571

Total Cost for special order $58257.76

Estimation of cost of special order when machine time is considered as the base for

allocating overheads
Overhead rate per hour $10

Material Cost $33810

Labor Cost $14000

Other Cost $5250

Total Cost $53060

Estimation of the Minimum Price per trailer

Total Cost $58257.76

Total unit $350

Minimum per unit cost $166.4507

Segmented Overhead Cost and Activity Based Budgeting

Segmented overhead expense helps in identification of the distinct variables as well as fixed

costs related to manufacturing and operational activities which cannot be easily remembered in

connection to the particular unit of result. The segmented overhead cost can be distinguished

with various operational assets such as machine which is associated with the labor, setup cost

etc. Therefore, a positive association can be established between the real and standard

expenditure. A segmented overhead cost includes different division of expenditure which can be
associated to the cost of produced goods. Hence, it can help in adoption of an effective pricing

strategy (Collier, 2012).

Answer 5:
Segmenting overhead is an important aspect for allocation of the overhead cost as it provides

support in identification of the cost associated with setting up, material purchase, operation and

inspection (Dopson & Hayes 2009).

Toyota has been adopted the procedure of segmenting overhead costs for enhancing the

efficiency of the costing practice in the organization. Different overhead costs include indirect

overhead, administrative overhead, selling overhead, manufacturing overhead etc. It is very

important to identify properly the type of each cost and categorizing it properly. For instance,

when a business firm is focusing on the classification of the different office supply, it must be

included in the administrative overhead (Coombs, Hobbs & Jenkins 2005). Legal and accounting

expenditures, auditing, office expenditures, audit fees etc will be categorized as the indirect

overhead cost. The wages related to material handling, production supplies, utility of the

equipments will be considered as the variable overhead. Segmentation of the overhead costs

significantly contributes in reducing the risk related to the overhead cost and undertakes the

costing process efficiently (Gregoriou & Finch 2012).

References
Collier, Paul M. 2012. Accounting For Managers. Chichester, U.K.: Wiley.

Coombs, Hugh M, David Hobbs, and D. E Jenkins. 2005. Management Accounting. London:

SAGE Publications.

Dopson, Lea R, & David K Hayes. 2009. Managerial Accounting For The Hospitality Industry.

Hoboken, N.J.: John Wiley & Sons.

Epstein, Marc J, & John Y Lee. 2011. Advances In Management Accounting. Bingley, UK:

Emerald.

Fields, E. (2002). The essentials of finance and accounting for nonfinancial managers. New

York: AMACOM.

Gazely, Alicia M, & Michael Lambert. 2006. Management Accounting. London: SAGE

Publications.

Gregoriou, Greg N, and Nigel Finch. 2012. Best Practices In Management Accounting. New

York: Palgrave Macmillan.

Hansen, Don R, & Maryanne M Mowen. 2000. Management Accounting. Cincinnati: South-

Western College Pub.