Southeast University

Department Of BBA
Assignment on: Final- Assignment
Course title: Managerial Accounting
Course code: ACT3136
Section: 01

Submitted to:
Mrs. Sharmeen Akther
Lecturer of Accounting
Department Of BBA
Southeast University

Submitted by:
Name: Sumon Parvej
ID: 2018010000139
Department of BBA
Southeast University

Submission date:04-02-2021

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 Answer to question no -01

Cost volume profit analysis is a technique used to study the inter-relationship between costs,
sales and net profit. The cost-volume-profit analysis, also commonly known as break-even
analysis, looks to determine the break-even point for different sales volumes and cost structures,
which can be useful for managers making short-term economic decisions. The cost-volume-
profit analysis makes several assumptions, including that the sales price, fixed costs, and variable
cost per unit are constant. Running this analysis involves using several equations for price, cost
and other variables. Cost volume profit analysis is thus the study of inter-relationship of cost
behavior, levels of activity and the resultant profit from each alternative combination. Each of
these three variables involved in Cost volume profit analysis is influenced by a number of
factors. The cost of a product is, for instance, influenced by factors such as cost of inputs,
volume, size of plant, efficiency of production, product- mix.
For example, a company with $100,000 of fixed costs and a contribution margin of 40% must
earn revenue of $300,000 to break even. Cost volume profit analysis is only reliable if costs are
fixed within a specified production level. All units produced are assumed to be sold, and all fixed
costs must be stable in a cost volume profit analysis.

Answer to the question no -02

Yes, gross margin calculations emphasize the distinction between manufacturing and
nonmanufacturing costs (gross margins are calculated after subtracting both fixed and variable
manufacturing costs from revenues). Contribution margin calculations emphasize the distinction
between fixed and variable costs. It is calculated by deducting the variable manufacturing and
non-manufacturing costs from revenues. Hence, contribution margin is a more useful concept
than gross margin in CVP analysis.

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 Answer to the question no: 3

a. Income statement based on variable costing for each of the two years:

Details 2008 2009

Sales ($5per unit) (1100*5 (1300*5)

) 6,500
5,500
Variable cost:
Beginning inventory 0 212
Variable cost goods 800 600
Cost of variable sale 800 812
(Less) Ending inventory (212) (108
Variable cost of goods sold 588 )
Variable operating (marketing) 1100 704
Variable cost contribution 1300 2004
margin 1688 4496
Contribution margin 3812

Fixed Cost 800

Fixed manufacturing cost 500 800
(+) Operating cost 500 (1300)
Total fixed cost (1300) 3196
Operating income 2512

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b. Income statement based on absorption costing for each of the two year:

Details 2008 2009

Sales ($5 per unit) (1100*5) (1300*5)
Revenue ($5 per unit) 5,500 6,500

Beginning inventory 0 424

Variable manufacturing cost 800 600
Fixed variable manufacturing 800 800
Cost of goods available for 1600 1824
sold (424) (330)
(less) Ending inventory
Cost of goods sold 1174 1494
Contribution margin 1100 4324 5006
Variable operating cots 500
Fixed operating cost
Total operating cost 1500 1800
Operating income 2824 3206

c. Numerical reconciliation
Details 2008 2009
Variable costing
Operating income 2512 3196
Ending income 212 108
Absorption costing
Operating income 2824 3206
Ending inventory 424 330
Fixed manufacturing
overhead 0 212
Beginning inventory 424 330
Ending inventory

  

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D.
i) Absorption costing is more likely to lead to inventory buildup then variable costing. Under
absorption costing, operating income in a given accounting period in increased by inventory
buildup, because some fixed manufacturing cost are accounted for as an asset (inventory) instead
of as cost of the period pf production. 
ii) Although variable costing will contract undesirable inventory build ups, other measures can
be used without abandoning costing, example:
1) Careful budgeting inventory planning.
2) Incorporating a carrying charge for inventory.
3) Charging the period used to evaluate performance to be long time.
4) Including nonfinancial variable that measure inventory levels in performance evaluation.

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 Answer to the question no - 04

i. Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing, Tomlinson Corporation for July 2011.

(Step 2)

(Step 1) Equivalent Units

Physical Direct Conversion

Flow of Production Units Materials Costs

Work in process, beginning (given) 8,500 (work done before current period)
35,000
Started during current period (given)
43,500
To account for
Completed and transferred out during current period:
From beginning work in process§

8,500  (100%  100%); 8,500 (100% – 20%) 8,500 0 6,800

Started and completed

(33,000  100%), (33,000  100%) 24,500 24,500 24,500
Work in process, ending* (given)
(10,500  100%); (10,500  60%) 10,500 10,500 6,300
Accounted for
Equivalent units of work done in current period 43,500 35,000 37,600

*Degree of completion in this department: direct materials, 100%; conversion costs, 20%.
33,000 physical units completed and transferred out minus 8,500 physical units completed and
transferred out from beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 60%.

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ii. Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit,
and Assign Costs to the Units Completed and Units in Ending Work-in-Process
Inventory; FIFO Method of Process Costing, Tomlinson Corporation for July 2011.

Direct Conversion Total

Materials Cost production
cost
(Step 3) Work in process, beginning
(given) 63,100 + 45,510 108,610
Costs added in current period (given) 2,84,900 + 4,85,040 769,940

Total costs to account for 348,000 + 530,550 914,550

(Step 4) Costs added in current period 284,000 485,040

Divide by equivalent units of work done

current period 35,000 37,600
Cost per equivalent unit of work done
in current period 8.12 12.9
(Step 5) Assignment of costs:
Completed and transferred out (33,000
units):
Work in process, beginning (8,500 units)
63,100 + 45,510 108,610
Cost added to beginning work in process (0*8.12) (6,800*12.9)
in current period 0 + 87,720 87,720
Total from beginning inventory 196,330
Started and completed (24,500 units) (24,500*8.12 (24,500*12.9)
) + 316,050 514,990
Total costs of units completed and 198,940 711,320
transferred out (10,500*12.9)
Work in process, ending (10,500 units) (10,500*8.12 135,450 220,710
+
Total costs accounted for )
85,260
347,300 584,730 932,030

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 Answer to the question No - 05

Given information is summarized as under:

Standard carrier:

Units sold 187,500

Contribution margin per unit $10

Deluxe carrier:

Units sold 62,500

Contribution margin per unit $20

Sales units proportion (187,500: 62,500) that is 3:1 unit

1. Calculation of Breakeven point in units:

Breakeven point in units:

Here, the company selling a bundle of 3 units of standard carriers and 1 unit of deluxe carrier.

(Note that this does not mean that the company physically bundles the two products together into one
big package.)

Now the contribution margin of the bundle can be calculated as under:

Contribution margin per bundle:

Products Units in Contribution Contribution

bundle margin per margin of
unit the bundle
Standard 3 $10 $30
Deluxe 1 $20 $20
Total $50

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To calculate the breakeven point, we should calculate the number of bundles the company
needs to sell.

Breakeven point in bundles = Fixed cost / Contribution margin per bundle

= $23,00,000 / $50
= $46,000

Breakeven point in units of Standard and deluxe carriers are as follows:

Standard: 46,000 bundles * 3 units bundle = 138,000
Deluxe: 46,000 bundles * 1 unit per bundle = 46,000
Total number of units of breakeven = 184,000

2. Calculation of Breakeven point in units if:

(a)Only Standard carriers are sold:

If only standard carriers are being sold then the total fixed cost will be laid down on these products
only.

Fixed cost= $23,00,000

Contribution margin per unit = $10

Break-even point in units can be calculated as follows:

Breakeven point in units = Fixed costs / Contribution margin per unit

= 23,00,000 / $10
= 230,000 units

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(b) Only Deluxe carriers are sold:

If only deluxe carriers are being sold then the total fixed cost will be laid down on these products
only.

Fixed cost = $23,00,000

Contribution margin per unit = $20

Breakeven point in units = Fixed costs / Contribution margin per unit

= 23,00,000 / $20

= 115,000 units

3. Computation of Operating income is summarized in the following table:

Income Statement
Particulars Standard Deluxe Total
Units sold 200,000 50,000 250,000
Revenue at $28 and $ 50 per unit $5,600,000 $2,500,000 $8,100,000
Variable costs at $18 and $30 per unit $3,600,000 $1,500,000 $5,100,000
Contribution margin $2,000,000 $1,000,000 $3,000,000
Fixed costs $23,00,000
Operating income $700,000

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Break-even point in units:

Sales units proportion (200,000: 50,000) that is 4:1 unit

Now the contribution margin of the bundle can be calculated as under:

Contribution margin per bundle:

Products Units in Contribution Contribution

bundle margin per margin of
unit the bundle
Standard 4 $10 $40
Deluxe 1 $20 $20
Total $60

To calculate the break-even point, we calculate the number of bundles the company needs to sell.
Breakeven point in units = Fixed costs / Contribution margin per unit
= 23,00,000 / $60
= 38,333 bundles

Break-even point in units of Standard and deluxe carriers are as follows:

Standard: 38,333 bundle * 4 units per bundle = 153,332 units
Deluxe: 38,333 bundle * 1 unit per bundle = 38,333 units
Total number of units of breakeven = 191,665

Comparison:

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The break-even units for the sales proportion 3:1 is 184,000 units, while the break-even units for
the sales proportion 4:1 is 191,665 units.

It is clear that the decline in the proportion of deluxe carrier’s sales mix leads to the increase in the
break-even units.

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