ACC 2103 MANAGEMENT ACCOUNTING
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
DIPLOMA IN MANAGEMENT STUDIES
ACC 2103 MANAGEMENT ACCOUNTING (Oct 2022– Dec 2022)
INDIVIDUAL ASSIGNMENT (40 marks; 30% of the overall weightage)
Master Inc. is a leading producer of glass panels for the construction industry. The annual income statement of Master Inc. for year ended 31 December 2021 were as follows:
Sales revenue (60,000 units) |
|
$3,600,000 |
Less: Cost of goods sold |
|
|
Direct materials |
$480,000 |
|
Direct labour |
$600,000 |
|
Variable manufacturing overheads |
$120,000 |
|
Fixed overheads |
$300,000 |
$1,500,000 $2,100,000 |
Less : Selling & administrative expenses |
|
|
Sales commission (% of sales) |
$288,000 |
|
Fixed selling & admin expenses |
$420,000 |
$ 708,000 |
Net operating income |
|
$1,392,000 |
Required: ( Treat each case independently)
1) Compute the break-even point in units and in sales dollars . What is the current margin of safety in sales dollars. ( 8 marks)
2) If Master Inc. believes that they are able to earn a targeted profit of $1,500,000 next year, how many glass panels must they sell to achieve this target. (2 marks)
3) Using the answers in Q1 and Q2, explain why cost-volume-profit analysis can be useful to management for planning and decision making. (4 marks)
4) In order to improve its profitability, the accountant in Master Inc is proposing a 5% reduction in the selling price because he believes it will lead to a 25% increase in number of units sold. Assume fixed costs remain unchanged, should Management accept this proposal? Explain clearly with workings. (4 marks)
5) For 2022, Management is proposing to export its glass panel to Indonesia. As a trial for the initial expansion, Master Inc will incur additional annual fixed expense of $120,000. Direct materials is expected to increase by $10 but no sales commission will be paid for sales commission.
How many glass panels must be sold to Indonesia if Master Inc wants to maintain its current profit level as a whole assuming that all other revenue and costs remain unchanged. (4 marks)
6) Master Inc. is also exploring the possibility of investing in a company, Force Frame Pte Ltd. Force Frame Pte Ltd has furnished the following records of the total overheads and the number of machine hours over a 6 months period in 2021.
Month |
Machine Hours |
Total overhead Costs ($) |
July |
1,364 |
32,290 |
August |
2,406 |
51,119 |
September |
842 |
22,912 |
October |
607 |
15,139 |
November |
725 |
19,545 |
December |
2,108 |
46,700 |
The components of October’s total overhead costs were as follows:
|
$ |
Cost behavior |
Factory utilities |
8,180 |
Mixed |
Factory supplies |
4,249 |
Variable |
Rental of facilities |
2,710 |
Fixed |
|
15,139 |
|
a) Using the high-low method, construct the cost formula for factory utilities. (10 marks)
b) Using the cost formula derived in (a), estimate the overhead costs if the total machine hours are expected to be 2,000 in May 2022. (4 marks)
c) Explain why is it necessary to separate a mixed cost into its variable and fixed components and why would cost behaviour change outside of the relevant range? Give an example . ( 4 marks)
2022-10-19