Managerial Accounting/Data Interpretation of Accounting figures/ 2-HOUR TURNAROUND/ DONT BID IF YOU CANT DELIVER!!!
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IfedayoP3_S3Report-Slides.pptxMini and Android Accounting Report
Name:
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Agenda
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Android01 unit cost using traditional costing methods
| Fixed cost 30% of total | $ 1,500,000 |
| variable overhead cost | $ 7,500,000 |
| Total overhead cost | $ 9,000,000 |
| per unit overhead cost | $ 30,000 |
| component per unit | $ 25,000 |
| Total cost per unit | $ 55,000 |
| Fixed cost 30% of total | $ 1,500,000 |
| variable overhead cost | $ 10,000,000 |
| Total cost | $ 11,500,000 |
| per unit overhead cost | $ 38,333 |
| component per unit | $ 25,000 |
| Total cost per unit | $ 63,333 |
| Android01 per unit cost using square feet as allocation basis | Android01 per unit cost using labor as allocation basis |
In traditional cost allocation system, overhead costs are allocated using machine hours, labor hours or space used
Per unit cost is calculated by dividing total fixed costs by total number of units produced and adding per unit variable cost into it
Android01Total per unit cost using Square feet as allocation base is $55000 and by using labor cost is $63,333
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Android01 per unit cost using Activity based costing
| Android01 per unit cost | |
| components | 25,000 |
| fixed cost per unit | 5,000 |
| setup per unit cost | 16,000 |
| Assembly per unit cost | 21,600 |
| Total cost per unit | 67,600 |
Activity based costing assigns costs to the activities that are the real cause of the overhead.
It then assigns the cost of those activities only to the products that are actually demanding the activities.
Under ABC costing, Android01per unit cost is $67,600
Even though the cost amount is higher using ABC costing ,it is the best method to allocate cost because cost calculated based on the actual use of the resources by each activity
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Markup pricing decision of Android01
| Fixed costs | 4,500,000 |
| total units | 300 |
| per unit fixed costs | 15,000 |
| variable costs per unit | 48,000 |
| Total cost | 63,000 |
| Markup at 30% | 18,900 |
| Price per unit | 81,900 |
| Markup Price From ABC Costing | |
| Total cost | 67,600 |
| Markup at 30% | 20,280 |
| Price per unit | 87,880 |
Android01 markup pricing percentage should be based on the company required rate of return. Increasing or decrease the markup percentage based on cost can have an impact on profit margin in the future.
If management needs 30% profit over cost, At the total cost of $63,000 the selling price will be $81,900. It is best to use the selling price of $87,880 ,which is the markup price at 30% from the ABC total cost of $67,600 because it accurately allocate cost with this method.
The company can launch the product while ensuring it maintains the standard profit margin of the company
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Pricing Decision for MiniY
| Number of Units | Sale Price per Unit ($) | Variable Cost per Unit ($) | Contribution margin per Unit | Total Contribution Margin |
| 200 | $70,000 | $60,000 | 10,000 | $2,000,000 |
| 250 | $66,000 | $54,000 | 12,000 | $3,000,000 |
| 300 | $64,000 | $48,000 | 16,000 | $ 4,800,000 |
| 350 | $59,000 | $46,000 | 13,000 | $4,550,000 |
| 400 | $52,000 | $45,000 | 7,000 | $ 2,800,000 |
The sales price of the product must be based on amount that will bring in the highest contribution margin.
At 300 unit, the company will get the highest contribution margin with the sales price of $64,000/ unit. The total contribution margin decreases when less or more than 300 unit are produced.
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MiniY: Production Cost Budget
| Production–Units of MiniY | 3200 | 3500 | 4000 |
| Components cost Per unit (variable) | 7500 | 6857.143 | 6000 |
| Labor cost Per unit (variable) | 4218.75 | 3857.143 | 3375 |
| Rent Per unit (fixed) | 1875 | 1714.286 | 1500 |
| Depreciation Per unit (fixed) | 1875 | 1714.286 | 1500 |
| Other Per unit (fixed) | 625 | 571.4286 | 500 |
| Total Cost Per Unit | 16093.75 | 14714.29 | 12875 |
IPS can increase the unit produced because the total cost per unit decreases as fixed cost are spread-out with more units, even though the variable cost increased as unit produced increased.
The company can maximize its profit with more unit produced, up to the level where the gross revenue per unit is the same as the costs incurred to produce that unit but at that point there will be no revenue generated.
The company should ensure that each additional unit produced does not have a negative impact on the gross margin
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Profit and Loss Statement for MiniY
MiniY is still profitable when it produces 3200 units as it would yield a total gross profit of $24,512,089 for IPS.
| Sales | 3200 Units of MiniY | 80,000,000 |
| Components cost (variable) | 25,600,000 | |
| Labor cost (variable) | 14,400,000 | |
| Rent (fixed) | 6,000,000 | |
| Depreciation (fixed) | 6,000,000 | |
| Other (fixed) | 2,000,000 | |
| Joint Costs | 1,487,911 | |
| Total Costs | 55,487,911 | |
| Total Gross Profit | 24,512,089 |
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Recommendation& Summary
