Accounting And Control-Free-Samples for Students-Myassignment

Questions: 1.Jerahm predicted that sales price and expenses will not change in 2018. Should they Operate next year? 2..Give your view, whether relying on CVP analysis to decide whether to keep Operating the Company is recommended. 3.Write an official brief Memo . Answers: 1. In the present case following are the variable expenses Potato Direct material hence variable expenses Cooking ingredients Direct material hence variable expenses Packaging (materials) Indirect material hence variable expenses Labor (wages) Direct labor not permanent hence variable expenses Administrative (inspectors monthly salary) Indirect labor not permanent hence variable expenses Sales commissions Directly related to sales Variable cost per unit Potato $ 2.00 Cooking ingredients $ 0.20 Packaging (materials) $ 0.30 Labor (wages) $ 3.00 Administrative (inspectors monthly salary) $ 1.00 Sales commissions $ 0.10 Total variable expenses $ 6.60 Revenue per unit is $8 hence contribution per unit become $8-$6.6=$1.4 per unit. Fixed cost i.e. cost related to Annual machine and building depreciations is $75000. Hence breakeven units (in KGs) become $75000/1.4= 53572 Kilograms. In the present case expected production for the year is 50000 kilograms which are below then the breakeven level hence it is suggested to the organization to do not operate in the coming year. 2.As per Cost volume profit analysis, a company should operate when sale volume of the company becomes either equal to breakeven point or above than breakeven point. The breakeven point is a level of sales where companys operation would result in neither profit nor loss. Whenever production of the company becomes higher than this level then companys operation will result in profits. In the present case, it is recommended to the company to operate in the year 2018 only if when company sale become 53472 kilograms or higher. Cost volume profit analysis depends on three assumptions i.e. fixed cost remains constant, variable cost per unit remains constant and sale price per unit remains constant (Kryvinska, Auer, Strauss, 2011). If all these three assumptions hold good then results formed from cost volume analysis become always relevant and become reasonable for the company in making a decision without actually incurring a loss. 3.Memo To: Jerahm and Angel From: Advisor Subject: Advise for reduction of risk of operating loss Jerahm and Angel are facing the dilemma regarding the operation of the Crunchy chips problem due to the importation of Chinese potato chips. Jerahm and Angel could make profits by revising their cost structure and so that operation becomes started to give a loss. As per cost volume profit analysis cost structure of any organization includes two types of costs one is a variable cost, which changes due to change in volume of sale and other is a fixed cost which remains contestant at each level of production and will not change due to increase and decrease in the level of production (Hansen, Mowen, Guan, 2007). In the present case, only fixed cost of the organization is depreciation and all other costs are a variable cost. When companys operating level was 150000 kilograms companys contribution margin was higher and eligible to set off fixed cost but when companys operating level come down to 50000 kilograms companys contribution margin become lower and become ineligible to set off fix ed cost. In the present case change in cost structure is not profitable because whenever companys production becomes lower then it is recommended to make fixed expenses as a variable expense, but in the present case except depreciation, all expenses are already variable. The way to reduce operating loss is to either reduce variable cost per kilogram or increase sale volume (Horngren, 2009). If it is possible for the company to reduce its cost per kilogram regarding any or all variable cost then company become able to reduce loss because the decrease in variable cost per unit results in an increase in contribution per unit and increase in total profit. Another way to reduce operating loss of the organization is to increase sale volume. Increase in sale volume will result in the same contribution per unit but the increase in the total contribution and such increase in contribution will result in increase total profit. Hence as per cost volume profit analysis, it is advisable to the organization to either increase sale volume of decrease variable cost per unit. Thanks References Hansen, D., Mowen, M., Guan, L. (2007). Cost management: accounting and control. Cengage Learning. Horngren, C. (2009). Cost accounting: A managerial emphasis, 13/e. Pearson Education India. Kryvinska, N., Auer, L., Strauss, C. (2011). An Approach to Extract the Business Value from SOA Services. International Conference on Exploring Services Science , 42-52.