Unit VII Final Project:
Michell Muldrow
Columbia Southern University
ACC 5301 Management Applications of Accounting
Dr. Renee Norris-Jones
June 14, 2022
Abstract
This report has used various management accounting tools to help the management of the Cookie business to make managerial decisions. The report has provided the contribution margin and break-even analysis to help the company managers assess the contribution of each of the three products produced by the Cookie business. Besides, the absorption and marginal costing methods have been used to determine the value of the closing inventory. To help managers of the company decide if they will take a particular order from the customer, the results of such a proposal have been presented to help managers make decisions. Additionally, the report includes the IRR, cash budget, and variance analysis technique to assist the managers of the Cookie business manager with the various managerial decisions.
Unit VII Final Project
Introduction
Management accounting provides various tools to help the manager to make decisions. The business’s success depends on how the organization uses its resources to generate revenue and profits (Schuster et al., 2021). At the core of this mandate and objective of the organization are the managers who must make day-to-day decisions. This report employs various accounting tools to help the Cookie business managers make managerial decisions. The essential management tools discussed in this report include the contribution margin and break-even analysis, absorption and variable costing techniques, special order analysis, the IRR investment technique, cash budget, and variance analysis.
Part 1 Contribution Margin/Breakeven
| Chocolate Chip | Sugar | Specialty | |
| Per item Contribution Margin | 0.79 | 0.69 | 3.23 |
| Weighted Average Contribution Margin | 1.02 | ||
| Break-even point in units | 122,783 |
Contribution margin analysis is critical in determining how products contribute to the one company’s overall profitability represents. The contribution margin is obtained by subtracting the variable cost of production from the total revenue (LABA, 2022). This analysis is critical for the management in deciding which product to produce and which should not be produced. Of the three products produced by the Cookie business, Specialty product contributes highly to the overall profits of the company than the rest of the products. Sugar product is the lowest contributor to the profitability of the company. On the other hand, the Cookie business needs to produce 122,783 units of the three products to remain in operation. Break-even units represent the number of units when the profit is zero.
Part 2 Full and Variable Costing
| Full (absorption) costing : | |
| Full cost per unit | $ 2.05 |
| Ending Inventory Full (absorption) costing | $ 369,000 |
| Variable costing : | |
| Variable cost per unit | $ 2.00 |
| Ending Inventory Variable costing | $ 360,000 |
Absorption costing is the method of determining the overall cost of production. It considers the variable and fixed costs of production (Schuster et al., 2021). From the above analysis, the total cost of production is $ 2.05 resulting in the high cost of ending inventory. Absorption costing does not provide a practical analysis of the contribution of each product to the profitability of the company. On the other hand, variable costing or marginal costing is the most efficient method of determining the cost of the product and its contribution to the organization’s overall profitability. The variable cost of production is $ 2 resulting in the closing stock value of $ 360,000.
Part 3 Special Order
| Revenue for special order | $ 2,750 |
| Costs for special order: | |
| Design cost | $ 500 |
| Tool cost | $ 100 |
| Net increase (decrease) in profit | $ 2,150 |
