Accounting for Business Decision Making Term Paper

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00 income if Mr. Pecos accepted the committed sale made by his Office Assistant Manager.

Prepare a contribution margin income statement for the month

Based on Mr. Peco's Decision

Recommended

Sales

286,500.00*

578,000.00**

Variable Cost

245 per unit)

925*245-226,625.00)

471,625.00)

Fixed Cost

Income

Computed as follows:

of units

Selling Price

Accepted Orders by Sam Smooth talk

Accepted Orders by Harry Hustler

Accepted Orders by Garry Giftofgab

Total Selling Price

286,500.00*

Computed as follows of units

Selling Price

Recommended orders to accept:

Total amount of accepted order

Total Selling Price

203000+286,500 578,000.00**

Assumption that $475,000 fixed cost is spread out evenly during the year, thus, fixed cost per month is at $39,583.33.

Take note that the fixed cost amount did not changed for the month. This is because fixed cost do not change as volume changes. It will be incurred in spite of how many number of units will be produced at a certain level.

The second column (recommended portion) accepted sales order for those above 276.66 cost per unit. In the second column, total units sold increased from 925 units to 1,925 units.

Other recommendations to improve operations

The usefulness of cost-volume-profit analysis as a planning and deciding tool depends on Management's estimates about future conditions. Manager's attitude toward risk-return relationship influences decision of Company's planned and target cost and income.

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With this note, I would suggest serious reevaluation of Mr. Ledger's analysis. Management's assumption may make or break the Company's success in budgeting its cost and maximizing profit. With previous illustration, we have shown how critical cost estimates can be in management's analysis and decision. It can result to lost opportunity of earning higher income or higher sales volume.

Additional suggestion is for the Company to evaluate its capacity to provide commissions or incentives to its sales team or employee. It maybe a great motivation or drive for the employees to perform at their best capacity.

Another suggestion is to cascade a uniform sales price to the distributors. The distributors might compare its buying price with another distributor and those with higher price may demand adjustment to lower price. This could cause dispute or even loss of possible customers.

Support Computation for Requirement 3

COMPUTATION

Fixed Cost for the year

Variable Cost of units

Amount

SAM SMOOTHTALK

HARRY HUSTLER

GARRY GIFOFGAB

GLENDA GOODPERSON

Contribution Margin (following Mr. Pecos' requirement - Sales price must be $300 and up) of units

SP per Unit

SAM SMOOTHTALK

HARRY HUSTLER

GARRY GIFOFGAB

Total Sales

Variable Cost (925 units x $245)

226,625.00)

Fixed Cost

Income

Contribution Margin (Writer's Recommendation to accept orders with SP $280 and up) of units

Amount

Total SP

SAM.....

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