A. The investors and creditors are interested in knowing things like CVP because it is a very easy way to address how much money sales a company needs in order to make a profit. They care if the sales mix is accurate because if the sales mix is different, it because a completely different calculation. B. The first financial model was not useful because it did not separate fixed and variable cost. That means a CVP analysis cannot be done. It separated costs into manufacturing and cost of goods sold which is not as useful as knowing which costs are fixed or variable. C. If I were going to invest in RBC, I would make sure the sales mix is accurate. It is important because the variable cost of beer is only 15% of the beer sales while food and other is 33% and 35% respectively. If food sales are much higher the CM goes down and it results in the Break Even Point being much higher. D. It is difficult to find out how much it costs for a pint of beer because it lists total beer sales without saying how many were sold. It is given as a total percentage of sales which means price or units cannot be figured out. E. The Contribution Margin for the company is 822,212/1,953,000=.420999 Break even then would be Sales Dollars=Fixed Cost/CMR 520000/.420999=$1,235,156 Margin of Safety is Actual Sales-Breakeven Sales=MOS is 1,953,000-1,235,156=$717,844 The percentage is 717,844/1,953,000= 36.8%
RBC cannot find the breakeven point in units because there is no number of units given in the problem or the cost of one pint of beer. Sales required for a $200,000 profit is (520,000+200,000)/.420999=$1,710,216 Sales required for a $500,000 profit is (520,000+500,000)/.420999=$2,422,806 It assumes that the CM ratio will be the same .420999 so sales mix must be 40% beer, 55% Food Sales and 5% other sales.
...International website. In the past, the company primarily marketed and sold to individual customers but recently has begun serving corporate and institutional customers as well. The company purchases products from its vendors, holds the products in inventory, and fulfills customer’s orders directly. EntertainmentNow.com’s operating results for the past years were extremely disappointing to management and to the company’s stockholders due to spending a significant amount of capital on the company’s technology and infrastructure. In result of the negative returns of the past year, the company needs to improve their operating performance. Even though the actual volume sales exceeded the expected volume sales, there was still an increase of net loss per item. The planned operating results showed a net loss of $1.94 while the actual results showed a loss of $2.10. Mark Dibbs, Vice president of Financial Analysis for EntertainmentNow.com is expected to explain what caused the company’s increased shortfall. Based on his analysis, he will explain this variance fully and make recommendations to senior management.
Analysis of Loss
The rates and the number of units sold determine planned and actual result differences, representing the variance. Variances are used in performance evaluation to determine areas that are performing differently than expected. As noted in chapter seven, focusing on understanding what caused the variances allows...
...What was the Kanthal president, Ridderstrale, attempting to accomplish with the Account Management System? Are these sensible goals? Why or why not? The motivation for Carl-Erik Ridderstrale, president of Kanthal, to develop an Account Management System was to find a process of determining the profitability of individual customer orders. An accurate account measurement system was needed in order to achieve a strategy for increasing growth and profitability without adding a significant amount of sales and administrative resources to handle anticipated increased sales. In order to carry out this strategy, a system was needed to allocate overhead expenses to the different categories of customers as well as products. Ridderstrale's motivation for the new system is a sensible goal to achieve in order to determine if the company is actually making money with their customers. With future growth imminent due to the success of their products, it was important that effort was taken to ensure that variable selling, general, and administrative (SG & A) costs did not increase faster than sales revenue. As Kanthal expanded operations and increased their market share, they captured business by meeting their customers' expectations for increased service. Increased demands were placed on their production and order-handling processes due to the JIT approach adopted by two of Kanthal's top customers in terms of total sales volume. It was also...
...CHAPTER 1 – COST VOLUME PROFIT-
MULTIPLE CHOICE QUESTIONS
1. CVP analysis can be used to study the effect of:
A. changes in selling prices on a company's profitability.
B. changes in variable costs on a company's profitability.
C. changes in fixed costs on a company's profitability.
D. changes in product sales mix on a company's profitability.
E. All of these.
2. The break-even point is that level of activity where:
A. total revenue equals total cost.
B. variable cost equals fixed cost.
C. total contribution margin equals the sum of variable cost plus fixed cost.
D. sales revenue equals total variable cost.
E. profit is greater than zero.
3. The unit contribution margin is calculated as the difference between:
A. selling price and fixed cost per unit.
B. selling price and variable cost per unit.
C. selling price and product cost per unit.
D. fixed cost per unit and variable cost per unit.
E. fixed cost per unit and product cost per unit.
4. Which of the following would produce the largest increase in the contribution margin per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.
E. A 23% increase in the number of units...
...Cost – volume – profit (CVP) analysis exercises
Lewis and Clark Co., a canoe manufacturer has a projected income for the next financial year as follows:
Sales (10,000 units) €6,000,000
Variable Expenses € 4,500,000
Fixed Expenses € 450,000
Total Expenses €4,950,000
Net Income €1,050,000
1) Determine the breakeven in units
Step 1: Unit Sales Price = Sales value / units =
Step 2: Variable Cost per unit = Variable expenses / sales units
Step 3: Contribution per unit = Unit sales price less variable cost per unit
Step 4: Breakeven = Fixed costs / contribution per unit
2) Determine the required sales level to earn an income of €600,000
Fixed costs + target Profit level
Contribution per unit
3) What is the breakeven point if the variable cost increases by 10%
Step 1: Contribution per unit = Unit sales price – new variable cost per unit
Step 2: Fixed costs / contribution per unit = Break even point
Lannion and Co is engaged in providing and marketing a standard advice service. The following summarised information for November and December is as follows
October November Change
Sales (units of service ) 200 300
Sales revenue (€) 5,000 7,500
Operating Profit (€) 1,000...
...COST CLASSIFICATION ASSIGNMENT
To classify the various costs would first of all require a definition between the two types of accounting that practically all businesses have to face and a number of key terms which are equally important. These are management accounting and financial accounting.
1. THE DIFFERENCE BETWEEN MANAGEMENT & FINANCIAL ACCOUNTING:
Management accounting is concerned with decision making,cost apportionment, planning and control. It is based within the organisation and is solely for the use of the managers to conduct their business dealings. The process of management accounting is proactive meaning the company is looking ahead, not backwards.
Financial accounting on the other hand is externally based and is primarily concerned with the preparation of financial statements for organisations' stakeholders. Stakeholders would include shareholders and competitors. Unlike management accounting it has to comply with various financial legislations and standards. Financial accounting concerns using data from previous years which also means that the information which is used is generally out of date.
2. HOW ARE ALL THE COSTS CLASSIFIED?
To classify costs would require a number of key terms to be defined; all of which should be understood fully in the concept of management accounting. These...
...I. Cost behavior defined
Module 4 Review Questions
The left column lists several cost classifications. The right column presents short definitions of those costs. In the blank space beside each of the numbers in the right column, write the letter of the cost best described by the definition.
A. Curvilinear cost B. Step-wise cost C. Fixed cost
D. Mixed cost E. Variablecost F. Total Cost
___E_1. This cost increases in direct proportion to increases in volume; its amount is constant for each unit produced.
__B__2. This cost remains constant over a limited range of volume; when it reaches the end of its limited range, it changes by a lump sum and remains at that level until it exceeds another limited range.
_D___3. This cost has a component that remains the same overall volume levels and another component that increases in direct proportion to increases in volume.
_A___4. This cost increases when volume increases, but the increase is not constant for each unit produced.
_C___5. This cost remains constant overall volume levels within the productive capacity for the planning period.
_F___6. This cost is the combined amount of all the other costs.
II. Contribution margin and breakeven
Apollo Company manufactures a single product...
...Chapter 1 Managerial Accounting, the Business Organization, and Professional Ethics
Management accounting produces information for managers within an organization.
Financial accounting produces information for external parties, such as stockholders, suppliers, banks, and government regulatory agencies.
What kind of accounting information do managers need to achieve their goals and objectives? Good accounting information helps answer three types of questions:
1. Scorecard questions
2. Attention-directing questions
3. Problem-solving questions
Managers should keep two important ideas in mind when designing accounting systems:
1. Cost-benefit balances – weighing estimated costs against probable benefits – are the primary consideration in choosing among accounting systems and methods.
2. Behavioral implications are the system’s effect on the behavior, specifically the decisions, of managers.
A budget is a quantitative expression of a plan of action. Budgets also help to coordinate and implement plans.
Performance reports provide feedback by comparing results with plans and by highlighting variances. Organizations use performance reports to judge mangers’ decisions and the productivity of organizational units. Performance reports compare the actual results to budgets, thereby motivating managers to achieve the objectives.
Management by exception means concentrating on the area’s that deviate from the plan and, in the...
...role of management accounting information in organisations’ pricing decisions.
MBA Financial Management Practical Work Assignment
ID Numbers 11230
We hereby certify that the following piece of work complies with the Own Work Declaration form already issued and with the University’s Rules and Regulations relating to plagiarism and collusion, as listed in the Essential Information for Students and the MBA Course Handbook.
There are three major influences on organizations’ pricing decision: the customers’ preference through shaping the demand, the competitors’ actions through pricing or providing substitute goods and lastly the cost through affecting the supply (Horngren et al., 2003). Though the most important factor in setting the profit-maximizing sales price is the elasticity of demand in the market, cost of producing the goods or service determines whether or not a company wants to sell at the market price. Without an accurate allocation of costs to products/services, the company could not consistently make economically sound, fact-based decisions on pricing and then maximize its profitability.
There are a several ways in categorizing the cost of producing products or services. Based on the cost behavior, management accounting classifies cost into fixed and variable...