Management accounting

Running Head: MANAGEMENT ACCOUNTING    1
MANAGEMENT ACCOUNTING        4
ACCT6004 MANAGEMENT ACCOUNTING
CASE STUDY
Table of Contents
Activity 1    4
1)    4
a)    4
b)    4
c)    4
d)    4
e)    4
f)    4
2)    5
a)    5
b)    5
c)    5
d)    6
e)    6
f)    6
Activity 2    7
a)    7
b)    7
c)    7
d)    7
e)    8
f)    8
Activity 3    9
a)    9
b)    9
i)    9
ii)    9
iii)    10
iv)    10
c)    11
d)    11
i)    11
ii)    11
Activity 4    11
a)    11
b)    12
c)    12
d)    12
e)    12
f)    12
References    14
Activity 1
1)
a)
Monthly staff payroll an expense that does not depend on the number of jersey sold. Therefore, it is a fixed cost. On the other hand, sales commission is directly related to the number of units sold. Therefore, it is a variable cost.
b)
A monthly rent of $200 for credit card processing equipment is fixed, as it does not depend on the number of times the equipment is used. Therefore, it is a fixed cost.
c)
Cost of goods sold is the cost of procuring the jersey from J&B, which is $14.80. Therefore, it is a variable cost as higher the number of jersey purchased, higher will be the cost.
d)
The cost of price tags attached to the jersey depends on the number of jersey procured. Higher the number of jersey procured, higher will be the cost. Therefore, it is a fixed cost.
e)
Inventory Insurance cost is $2 per $1000 of saes. Therefore, it is a variable cost as higher the sales volume, higher will be the insurance cost. Therefore, it is a variable cost.
f)
Website hosting cost of $100 per month is fixed throughout the month, irrespective of the quantum of sales. Therefore, it is a fixed cost. As per the views of Fullerton, Kennedy and Widener (2014), the management, to compute the breakeven point, can use the information on cost behaviour and contribution margin. In addition to that, the same information can be used to determine the target sales to be achieved to obtain a desired level of operating profit. According to the perspectives of Chiwamit, Modell and Scapens (2017), any decrease in the cost of manufacturing and the target sales can be planned using the information.
2)
a)
Operating profit equation of Sports Strength is as follows:
Sales – Cost of Goods Sold – Total fixed cost – commission = Operating Profit
b)
Total sales = $1039500
Selling Price per jersey = $20
Therefore, Number of jersey sold = Total Sales / Selling Price per jersey = $1039500/20 = 51975 jerseys.
c)
Number of jersey sold is 10% short of expected sales
Therefore, actual sales = 90% of expected sales
Therefore, expected sales = actual sales / 90% = 51975/90% = 57750 jerseys.
Therefore, expected sales = 57750 jerseys.
If there would have been expected sales then no of extra jersey would have been sold = 57750- 51975 = 5775 jerseys.
Therefore, additional profit on one jersey would have been the number of extra jersey * contribution per jersey
Therefore, additional profit before tax = 5775 jersey * $4 = $23100.
Additional profit after tax = $23100* (1-tax rate) = $23100*(1-30%) = $16170.
If number of jerseys sold = 55000, then total variable expense = 55000*(14.80 + 1.20) = $880000.
Total expenses = Total variable cost + Total Fixed Cost = $880000 + $168000 = $1048000.
d)
If the offer is accepted, then the advertising cost of $20000 will lead to an increase in the fixed cost. Therefore total fixed cost = $168000+ $20000 = $188000.
Therefore, operating profit equation = Sales – Cost of Goods Sold – 188000 – commission
e)
Assuming number of jersey sold next year is 60000. The contribution income statement is as follows:
    Particulars
    Amount ($)
    Amount ($)
    Sales (60000*20)
    
    1200000
    Less: Variable Costs
    
    
    Cost of goods sold (14.80 per jersey)
    888000
    
    Commission (1.20 per jersey)
    72000
    960000
    Total Contribution
    
    240000
    Less: Fixed Expenses
    
    
    Selling & Advertising
    136500
    
    Administrative
    51500
    188000
    Operating Profit
    
    52000
f)
After the ad campaign, there is an increase in profit of $12100, which is a significant number. Therefore, the proposal of the ad campaign should be accepted. According to the...