Running head: MANAGERIAL ACCOUNTING 1
Breakeven point term means the volume of production (expressed in monetary or physical units) at which the companys profit is equal to zero. Thus, the point of breakeven revenue from the sale of goods is equal to the total costs of the enterprise. It is the point where the company does not receive any profit or losses; moreover, it is the point when all the companys expenses are covered. Therefore, it is necessary to know what the breakeven point of QD sales should have in sales units and value. In sales value the breakeven point is determined as the sum of fixed costs divided by the difference between unit contribution margin and selling price for unit. The breakeven point is sales per months and is determined as the sum of fixed costs divided by the unit contribution margin.
24*4,000 = 96,000 is the sum of fixed overhead.
240-44-72-28=96 is the unit contribution margin.
96,000/(96/240)=96,000/0.4=?240,000 is the breakeven point in sales value.
96,000/96=1,000=1,000 units is the breakeven point in units for QD Ltd.
Margin of safety is determined as the differences between actual sales and the breakeven point sales. The safety margin reflects the marginal value of a possible reduction in the volume of sales without the risk of ending up in losses.
4,400-1,000=3,400 units is the margin of safety for QD Ltd.
If management of the company has decided to produce 4,400 units in the next month, the profit per unit should be first calculated. Firstly, it is necessary to determine the fixed overhead that is changed, because of the production amount of units was changed.
96,000/4,400=21.82 is the fixed overhead per unit with the amount of produced units 4400.
240-(44+72+28+21.82) =?74.18 is the profit for unit received with the production of 4,400 units in the next months.
4,400x74.18=?326,392 is the profit budget for the next month.
If managers of QD Ltd have decided to receive the profit in ?192,000 with:
1) the profit for unit ?72, it should be produced: 2,667 units.
2) the profit for unit 74.18 2,589 units.
With the changes in unit production it is necessary to determine how these changes influenced the revenue and profit formation. Therefore, it is necessary to calculate all relevant costs in the end of the quarter.
192,577/7,700=$25 were actually spent on each unit production on direct labor.
89,436/7,700=$11.62 were actually spent for the production on one unit for direct material.
30,750/7,700=$3.99 were actually spent for variable overhead for unit.
72,400/7,700=$9.4 were spent for fixed overhead per unit.
Revenue variance is determined as the differences between actual and standard revenue. This shows if the company has received positive or negative deviations in comparison to planed or forecasted revenue.
424,270/7,700=$55.1 is actual price for unit.
55x7,500=$412,500 is the budget revenue.
424,270-412,500=$11,770 is the revenue variance received by the TG company.
Therefore, with the positive revenue variance in $11,770 the company has exceeded its static budget expectations, which brought company additional revenue and profit.
Absorption costing is the calculation of the cost of production by attributing all the production costs of the current period that were released in the same period of production. It is the most widely used approach to the calculation of the cost that is used in accounting, as well as tax accounting. In the production costs, calculation with the absorption costing method usage includes direct production costs and overhead costs. Therefore, using this method it is necessary to calculate the TG Companys budget and actual profit.
4x6x7,500=$180,000 is the direct labor expanses in budget.
1.2x10x7,500=$90000 is budget direct material for 7,500 units.
1x4x7,500=$30,000 is budget variable overhead for 7,500 units production.
412,500-(180,000+90,000+30,000+75,000) = $37,500 is budget profit calculated by the absorption costing method.
424,270-(192,577+89,436+30,750+72,400) = $39,107 is actual profit.
The marginal costing calculation is based on the distribution of costs into variable and fixed, and assumes that the production cost is measured at a variable cost. Thus, the production cost of products includes direct materials, direct wages and part of the overheads that are variable. Fixed overhead costs do not include the cost of production, and enroll in expenses for the period. Variable costing is a necessary complement to the calculation of full costs. It is used in management accounting for planning, control, decision-making about the manufacture of new products, pricing, profit planning. Therefore, the budget and actual profit can be determined by using the marginal costing method.
412,500-(180,000+90,000+30,000) = $112,500 is budget profit calculated with the marginal costing calculation method
424,270-(192,577+89,436+30,750) = $111,511 is actual profit.
Therefore, the main difference in the budget and actual revenue is caused by the differences in the fixed overhead sums.