accounting for business decision making january 2022 semester

Cash BudgetFor the quarter ending December 31, 2021Add: Cash collected from customersLess: Cash disbursementsPurchase of direct materials 579,400Selling and administrative overhead 25,00

HOCHIMINH CITY UNIVERSITY OF TECHNOLOGY

ASSIGNMENT

BMAC5203 ACCOUNTING FOR BUSINESS DECISION MAKING JANUARY 2022 SEMESTER

Instructor (Lecturer):

Student’s name: HA QUOC CHINH

Course code:

BMAC5203

Ho Chi Minh City, 2022

Task 1: CLO3

a Sales Budget

Sales Budget

b Production Budget

Production Budget

c Direct Materials Budget

Direct Materials Budget

Required in production of TX7 32,500 19,500 6,500

Required in production of TX9 16,800 12,600

-Total direct materials needed in production 49,300 32,100 6,500

Add: Ending inventory 3,600 3,200 700

Total direct materials needed 52,900 35,300 7,200

Purchase of direct materials in units 49,700 32,400 6,600

Budgeted cost of direct materials purchases 397,600 162,000 19,800 579,400

d Direct Labor Budget

Direct Labor Budget

Total direct labor hours needed 13,000 12,600

Budgeted direct labor cost $156,000 $201,600 $357,600

Cash Budget For the quarter ending December 31, 2021

Add: Cash collected from customers

Less: Cash disbursements

Purchase of direct materials 579,400

Selling and administrative overhead 25,000

Task 3 (CLO2)

Solution:

Breakeven analysis, also termed as Cost, Volume and Profit (CVP) analysis is a short-term managerial decision making technique The analysis aims to estimate profit for changes in costs and volume Breakeven point is the point at which the total revenues equal total costs, which results in no-profit, no-loss situation

All sales above breakeven point result in profit and sales below breakeven point result in loss Queenie Cocoa

1 Contribution margin income statement:

For the First Year of Operations

Variable costs:

Manufacturing overhead

$210,000

Selling and administrative overhead $126,000

Fixed costs:

Selling and administrative overhead $120,000

Hence, net income for the first year of operations is $168,000

Computations and explanation:

Sales = number of units sold x sales price per unit Number of units sold = 42,000

Sales price per unit = $40

Sales = $40 x 42,000 = $1,680,000

Variable costs –

Direct materials at $12 per unit = $12 x 42,000 = $504,000

Direct labor at $6 per unit = $6 x 42,000 = $252,000

Manufacturing overhead at $5 per unit = $5 x 42,000 = $210,000

Selling and admin overhead at $3 per unit = $3 x 42,000 = $126,000

Contribution margin = sales – total variable cost

Contribution margin = $1,680,000 – $1,092,000 = $588,000

b) Calculate Queenie's break-even point in units and dollars

Breakeven point in units = 30,000

Breakeven point in Dollars = $1,260,000

Computations and explanation –

Breakeven point in units = fixed cost/contribution margin per unit

Total fixed cost = fixed manufacturing overhead + fixed selling and admin overhead Total fixed cost = $300,000 + $120,000 = $420,000

Contribution margin per unit = total contribution margin/units sold

Total contribution margin = $588,000

Contribution margin per unit = $588,000/42,000 units = $14

Now, breakeven point in units = $420,000/$14 = 30,000 units

hence, the company should sell 30,000 units to breakeven

Breakeven point in Dollars –

Breakeven point in Dollars = fixed costs/CM ratio

Total fixed cost = $420,000

CM ratio = CM/sales

CM ratio = ($588,000/$1,680,000) x 100 = 33.33%

Breakeven point in Dollars = $420,000/33.33% = $1,260,000

Assuming tax rate – 40%; compute margin of safety in units at this point:

The number of units that Queenie must sell to achieve an after-tax profit of $210,000 – 55,000 units

Computations and explanation:

Desired units = (Target profit before tax + Fixed cost)/CM per unit

Target profit before tax = After-tax profit/(1-Tax rate)

After tax profit = $210,000

Tax rate = 0.40

Target profit before tax = $210,000/(1-0.40)

Target profit before tax = $210,000/0.60 = $350,000

Total fixed cost = $420,000

CM per unit = $14

Desired units = ($350,000 + $420,000)/$14

Desired units = $770,000/$14 = 55,000

Hence, desired units that Queenie must sell to achieve an after-tax profit target of $ 210,000 is 55,000

Margin of safety at this level:

Margin of safety = actual sales – desired sales

Actual sales = 42,000 units

Desired sales = 55,000 units

Margin of safety = 42,000 – 55,000 = (13,000) units

Margin of safety is negative at this level of units

d Calculation of new breakeven point in Dollars, assuming Queenie incurs additional selling expenses

of $35,000:

new breakeven point in $ is $1,365,000

Computations and explanation:

Breakeven point in $ = total fixed cost/CM ratio

Hence, total fixed cost = $420,000 + $35,000 = $455,000

Assuming all other costs remain constant,

CM ratio = $14/$40 = 33.333%

Breakeven units = $455,000/33.33% = $1,365,000

Hence, new breakeven point in $ is $1,365,000

e Breakeven analysis is based on several assumptions How do these limit the use of the analysis?

Breakeven analysis is based on the following assumptions

The selling price remains constant The number of units produced equal the number of units sold, hence, there will be no beginning and ending inventory of units The variable cost per unit remains constant and is directly proportional with sales

The fixed cost remains constant in whole and is not affected by changes in sales volume

Limitations:

The assumptions of breakeven analysis may not hold true in real-life scenarios

The selling price may not be constant for all situations The selling price may be affected by various factors such as supply-demand changes, market competition and market trends

The variable and fixed costs may not be easily differentiated into clear-cut fixed and variable components

The total fixed cost is assumed to be constant for any given level of sales, but in reality, the fixed costs tend to change beyond a specific of sales volume

Also, the assumption that variable costs vary directly in proportion to the sales volume, which may not

be necessarily true in actual situations The variable costs may not exactly vary in direct proportion to sales volume

The breakeven analysis also assumes that the product mix remains constant, which may not happen in real situations The product mix may vary with changes in market conditions

Task 4: CLO1

Solution :

The price $0.70

focus on favourable price variance Therefore from the point de view of favourable pource variance, purchasing from news suppliers is right but simultaneously it is also need to verify the credibility of suppliers ke-quality of goods chettvered and future saturned option, ste As in this case, experience and Information indicate that rrecord and Information about the new supplier 78 not Satisfaetsy so favourable purice 98 meaningless as if there P8 possibility s bad quality and option of satwoned may be absent while dealing with this supliere SO, Explained above st is not ethical as decision taken by Assul

PART 2 (50%)

Task 1: CLO3

a Material price variance = (Standard Price – Actual Price) x Actual Quantity

Material price variance = ($5 - $5.25) x 96,000 = $24,000 unfavourable (U)

b Material usage variance = (Standard Quantity – Actual Quantity) x Standard Price

Material usage variance = (20 x 5000 unit - 96,000) x $5 = $20,000 favourable (F)

Direct labourrate variance = (Standard Rate – Actual Rate) x Actual hours

Direct labourrate variance = ($6 - $6.55) x 41,000 = $22,550 unfavourable (U)

d) Direct labour efficiency variance = (Standard hours – Actual hours) x Standard rate hours Direct labour efficiency variance = (8 hrs x 5000 – 41,000 hrs) x 6 = 6,000 unfavourable (U) e) Variable overhead spending variance = Actual Variable overhead – Standard Variable overhead rate

x Actual hours

Variable overhead spending variance = $238,000 – $3 x 41,000 = $115,000 unfavourable (U) f) Variable overhead efficiency variance = (Standard hours – Actual hours) x Standard Variable overhead rate

Variable overhead efficiency variance = (40,000 – 41,000) x $3 = $3,000 unfavourable (U)

Task 2: CLO4

a

Direct Material $72,000 $72,000

Working

Only costs which are avoidable with the decision are considered relevant and used in computing the difference

Since the cost of purchasing is lower than relevant cost of making, product should be purchased from outside supplier

Maximum cost that teddy is willing to pay = $144000/8000 = $18 per unit

b

Direct material is the raw material required in the production of goods When there will be no production, there will be no requirement of that raw material, hence that raw material cost will be discontinued Since the cost is avoidable, it is relevant cost Since direct material is required only for production, and will be discontinued if goods are not produced, so direct material cost is always relevant, cannot be irrelevant ever

Current ratio =

Current ratio for 2020 = = 2,98

Current ratio for 2019 = = 2,57

Since current ratio has increased from 2,57 to 2,98 from 2019 to 2020, it means that company’s ability

to pay short term obligations has increased

b) Quick ratio (year 2019 -1.68)

Quick ratio = =

Quick ratio for 2020 = = 1,82

Since Quick ratio has increased from 1.68 to 1.82 from 2019 to 2020, it means that company’s ability

to riquidate its assets instantly to pay off its current liabilities has increased

c) Accounts receivable turnover (year 2019 -11.87)

Accounts receivable turnover =

Average account receivables = = $768

We have assumed sales to be net credit sales

Account receivables turnover for 2020 = = 14,81 times

Account receivables turnover for 2019 = 11,87 times

Since Account receivables turnover has increased from 11,87 to 14,81 from 2019 to 2020, it means the company will new collect its average receivables in more time which is not a good sign

d) Inventory turnover (year 2019 – 9.80)

Inventory turnover =

Average Inventory = = $900

Inventory turnover for 2020 = = 12,64 times

Inventory turnover for 2019 = 9,80 times

at which company can sell and replace its stock of good is higher in 2020 than that of 2019

e) Debt ratio (year 2019 – 47.57%)

Debt ratio = x 100

= x 100

Debt ratio for 2020 = x 100 = 43,65%

Note: We have assumed non current liabities consiste of only long term debt and current liabities consist of only short term debt

Debt ratio for 2019 = 47.57%

Since debt ratio has decreased from 47.57% in 2019 to 43,65% in 2020 it indicates that the proportion

of company’s asset finaneed by debt has decreased

f) Return on assets (year 2019 – 1.40%)

Return on assets = x 100

Return on assets for 2020 = x 100 = 18,28%

Return on assets for 2019 = 1,40%

Since Return on assets has significantly inurased from 1,40% in 2019 to 18,28% in 2020, it means that company’s management has been efficiently using total asset of company to generate more carnings

g) Profit margin (year 2019 – 1.00%)

Profit margin = x 100

Profit margin for 2020 = x 100 = 9.85%

Profit margin for 2019 = 1,00%

Since, profit margin has increased significantly from 1,00% in 2019 to 9,85% in 2020 oit means that company can generate more profit from its sales in 2020 as copared to 2019

h) Return on common stockholders' equity (year 2019 – 2.68%)

Return on common stockholders' equity for 2019 = 2,68%

Since, Return on common stockholders' equity has increase significantly from 2,68% to 32,44% from 2019 to 2020 it means that company is generating more return on investment received from common stockholders in 2020 as conpared to 2019