managerial economic assignment

Cozy Bookstore Case Study CLA2

Variable upward can be depicted as those overheads that typically change straightforwardly corresponding and like the varieties in the particular creation exercises, cost drivers, some remarkable volume measures or deals movement (Schiff, 1987). The ramifications is that an increment or reduction in the expense causes a corresponding increment or abatement in the expense or volume driver. On a similar note, the variable expense change proportionately and comparatively to the results or the association's movement levels (Hasan, 2015). In such manner, variable expenses are commonly founded on the exercises given that an organization normally brings about them because of the action, work done or yield. This suggests that in the event that the association's result significantly increases, costs will likewise significantly increase (Largay, 1973). Also, shutting down an organization for quite a while, no factor costs will be caused.

Accepting that Green Valley produces noodle, the organization will require unrefined components like sugar, different flavors, salt, flour, sodium bicarbonate, vegetable oils, and starch (Fu, 2008). On a similar note, the organization will without a doubt enlist work and concentrated machines to settle the item. In this way, the item should be bundled in very much planned bundles (Hyun et al., 2011). In this case, variable costing includes direct costs, work and unrefined substances. The presumption here is that Green Valley should buy material per bundle at Rs 2. It additionally needs to cater for the work in view of the piece rate framework where they offer five rupees for every parcel. Also, the organization needs to cause different backhanded costs incorporate 10,000 rupees for the creation site's lease. Creation gear is supposed to deteriorate (Del Giudice et al., 2016) with 20,000 rupees. In addition, the publicizing costs are 20,000 rupees, with sales rep commission costing three rupees for every bundle. Then again, Green Valley intends to deliver 10,000 bundles and charges 25 rupees for every parcel.

Based on the above information;

Total variable costs of manufacturing each packet = Direct Expenses + Labor + Materials= 2 + 5 + 2= 9 rupees for each packet.

The Total variable cost for distribution and selling costs for each packet = Labelling and packaging + Commission paid to the salesmen.= 5 + 2 = 5 Rupees for every packet.

Total variable cost for the noodles = 14 Rupees each packet

Total fixed manufacturing cost = compensation + Depreciation + Rent= 20, 000 + 20, 000 + 10, 000= 50, 000 Rupees.

Total fixed distribution as well as selling cost = Warehouse rent + Advertising= 20, 000 + 10, 000 = 30, 000 Rupees.

Total fixed cost = 80, 000 Rupees.

Green Valley Corporation

Variable costing based income statement

Particulars	Amount	Amount
Sales Revenue (10, 000 * 25)		250, 000
Less: Variable Cost
Material for 2	10, 000
Labor for 5	50, 000
Sales commission for 3	30, 000
Direct expense for 2	10, 000
Labeling and packaging for 2	20, 000	(120, 000)
Contribution Margin		130, 000
Less: Fixed Cost
Depreciation	20, 000
Advertising	30, 000
Factory Rent	10, 000
Warehouse Rent	10, 000
Material staff compensation	20, 000	(90, 000)
Income form production		40, 000

In the given situation there are two assistance divisions and three working offices inside an organization. Make a departmental cost portion bookkeeping sheet for the organization.

The promoting office assigns their costs to the working divisions based on the deals. The publicizing division has S24, 000 in costs to designate. Every office has a specific measure of deals. The deal for that division is partitioned by the absolute deals of the organization to decide the rate to apportion to every office. This rate is then duplicated by the publicizing division's costs to decide the assignment sum.

Department	Cost	Allocation Basis
Advertising	24000	Sales
Department	Sales	% of Total	Allocation
Books	495000	0.55	13200
Magazine	198000	0.22	5280
Newspaper	207000	0.23	5520
Total	900000	1	24000

The buying division allots their costs to the working offices based on the quantity of procurement orders by every division. The buying office has $34;000 in costs to apportion. Every office has a specific amount of procurement orders. The amount of procurement orders for that division is partitioned by the all-out amount of procurement orders for the whole to decide the rate to allot to every office. The buying office's costs to decide the designation sum then duplicate this rate.

Department	Cost	Allocation Basis
Purchase	34000	Sales
Department	Purchase order	% of Total	Allocation
Books	516	0.43	14620
Magazine	360	0.3	10200
Newspaper	324	0.27	9180
Total	1200	1	34000

The resulting departmental expenses allocation speared sheet for the company.

	Expenses	Advertising	Purchase	Book	Magazine	Newspaper
Total departmental expenses	698,000	24,000	34,000	425,000	90,000	125,000
Service Department Expenses
Advertising Dep (Sales base)		-24,000		13200	5280	5520
Purchasing Dep (Purchase order)			-34,000	14,280	10540	9180
Total expenses allocate to operating department	698,000	0	0	452,480	105,820	139,700

Particulars	Total amount	Variable Cost per	Fixed Cost per Year
	($)	unit ($	($)
Variable items:
Direct Materials	975, 000	65
Direct Labor	225, 000	15
Machinery Repairs	60, 000	4
Utilities	45, 000	3
Packaging	75, 000	5
Shipping	105, 000	7
Total Variable Cost	1, 485, 000
Fixed Items:
Depreciation – Plant	300, 000		300, 000
Equipment
Utilities	150, 000		150, 000
Plant Management	200, 000		200, 000
Salaries
Sales Salaries	250, 000		250, 000
Advertising	125, 000		125, 000
Salaries	241, 000		241, 000
Entertainment expense	90, 000		90, 000
Total Fixed Cost			1, 356, 000

Particulars	$
Sales Revenue	3, 000, 000
Less: Variable Costs	1, 485, 000
Contribution Margin	1, 515, 000
Less: Fixed Costs	1, 356, 000
Net Operating Income	159, 000

Fixed Costs	$ 1, 356, 000
Contribution Margin per Unit	$ 101
Break-Even Point	13, 426 units

Therefore, to break even, the company has to sell 13,426 items which will give total sales cost =

$2,685,200 (Wild & Shaw, 2019).

Income statement:
Particulars	Flexible Budget	Flexible Budget for:
	Variable Amount per Unit	Total Fixed Costs	Unit Sales	Unit Sales	Unit Sales	Unit Sales
			12000	14000	16000	18000
Sales Revenue	$200		$2,400,000	$2,800,000	$3,200,000	$3,600,000
Variable Manufacturing Costs
Direct Materials	$65		$780,000	$910,000	$1,040,000	$1,170,000
Direct Labor	$15		$180,000	$210,000	$240,000	$270,000
Machinery Materials	$4		$48,000	$56,000	$64,000	$72,000
Utilities	$3		$36,000	$42,000	$48,000	$54,000
Packaging	$5		$60,000	$70,000	$80,000	$90,000
Shipping	$7		$84,000	$98,000	$112,000	$126,000
Total Variable Costs	$99		$1,188,000	$1,386,000	$1,584,000	$1,782,000
Contribution Margin	$101		$1,212,000	$1,414,000	$1,616,000	$1,818,000
Fixed Costs:
Depreciation –Plant Equipment		300000	300000	300000	300000	300000
Utilities		150000	150000	150000	150000	150000
Plant Management		200000	200000	200000	200000	200000
Salaries
Sales Salaries		250000	250000	250000	250000	250000
Advertising		125000	125000	125000	125000	125000
Salaries		241000	241000	241000	241000	241000
Entertainment expense		90000	90000	90000	90000	90000
Total Fixed Costs		1356000	1356000	1356000	1356000	1356000
Net income			($144,000)	$58,000	$260,000	$462,000

References:

Davis, J. M. (1998). Project feasibility using breakeven point analysis. Appraisal Institute, 66(1), 41-45. https://www.proquest.com/scholarly-journals/project-feasibility-using-

breakeven-point/docview/199944718/se-2?accountid=158986

Novin, A. M. (1992). Applying Overhead: How to Find the Right Bases and Rates. Institute of Management Accountants, 73(9), 40. https://www.proquest.com/scholarly-

journals/applying-overhead-how-find-right-bases-rates/docview/229742735/se-2?

accountid=158986

Stapleton, D., Hanna, J. B., Yagla, S., Johnson, J., Markussen, D. (2002). Measuring logistics performance using the strategic profit model. Emerald Group Publishing Limited, 13(1), 89-107. https://dx.doi.org/10.1108/09574090210806388

Tucker, M. W. (1982). Flexible Budgeting as a Management Tool. SAGE PUBLICATIONS, INC., 6(4), 10. https://www.proquest.com/scholarly-journals/flexible-budgeting-as-

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Wild, J., & Shaw, K. (2019). Financial and managerial accounting: Information for decisions

(8th ed.). McGraw-Hill