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ACCY801 Accounting & Financial Management - CVP Analysis Assignment

Description:
Based on the detailed instructions provided below, prepare a business report using the template provided on Moodle. The report addresses two topics: A) cost-volume-profit (CVP) analysis, and B) budgetary planning and control. As per the template, the report should contain a title page, table of contents, executive summary, and two sections containing the main body of the assignment: Part A and Part B. Assignments of this type normally would include a single section on conclusions / recommendations; in this case a separate conclusion is required for Part A and not for part B.
Important notes:
1) The background knowledge necessary to complete this report has been covered in ACCY801 in topics 6 and 7 and the associated lecture recordings, readings and tutorial questions.
2) Each student's assignment has different data and it is therefore not possible to copy another student's assignment.
3) The assignment MUST be submitted using the template. Assignments completed and submitted without the use of the template will be returned to the student unmarked. In such situations, the student will be asked to resubmit the assignment using the template, and late penalties will then apply to any resubmitted assignment.
4) The templates are designed to ensure acceptable presentation standards, and to prevent excessively long submissions and the inclusion of irrelevant material. Students should therefore view the templates as an aid, rather than a hindrance. Requests for relaxation of the template requirements will be denied in all instances. Hint: don't include any formulas or definitions!
5) The University's Academic Integrity and Plagiarism Policy will be strictly enforced. Please read the section on ACADEMIC INTEGRITY in the subject outline.
6) Please refer to the marking guide and other relevant material provided on Moodle.
Detailed instructions:
Complete the requirements for Parts A and B as specified on pages 2 and 3, and prepare an executive summary. Keep your answers (i) succinct enough so that they can fit into the spaces provided in the template but with sufficient detail to answer the question, and (ii) relevant. Note that the executive summary is worth 5 marks.

PART A (45 marks):

Yacca Limited has prepared the following profit analysis, for the current financial year:

Sales (150,000 units)	$ 1,455,000
Variable expenses	$ 720,000
Contribution margin	$ 735,000
Fixed expenses	$ 273,000
Profit	$ 462,000

Management are considering a range of options to improve profitability. These options include reducing the selling price by $0.20 per unit and updating machinery and production methods. If machinery and production methods are updated, fixed expenses will increase by $88,000 per year and variable expenses will decrease by $1.60 per unit. However, management are concerned at the increased risk from changes to the level of operating gearing. If the selling price is reduced by $0.20 per unit, the number of units sold is expected to increase by 5%. There is no reason why management cannot reduce the selling price and update machinery and production at the same time.

Required:

Calculate the contribution margin per unit, total fixed costs, the breakeven point in units, and total expected profit for all of the possible choices that management can make. Show the results of your calculations in the table in section 1, part A of the template.

(10 marks)

Complete the following table in section 2, part A of the template, showing expected profit at various sales levels for (i) the current state of operations (no changes) and (ii) the case where machinery and production methods are updated. Show all amounts in whole dollars (do not include cents).

Sales (units)

50,000

100,000

150,000

200,000

Expected profit (no

change)

Expected profit (machinery & production methods

updated)

(9 marks)

Based on your results for part 2 produce a profit-volume chart. Show both cases on the same set of axes. Insert the chart into the space provided (Figure 1) in section 4, part A of the template.

(10 marks)

Based on your results to parts 1, 2 and 3, write a brief recommendation to management advising on the recommended course of action (template section 3, part A).

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Note: Part 3 is presented after part 4 in the template!

Page 2

PART B (50 marks):
Outhouse Limited manufactures and sells garden sheds for $1100. At the end of June, the following actual and expected sales numbers were provided:
		Sales (units)
	June (actual)	400
	July	450
	August	300
	September	400
	October	700
Each shed requires 26 square metres of sheet metal at a cost of $24 per square metre, and requires three hours of direct labour to be manufactured. The direct labour cost is $18 per hour. The finished goods ending inventory for each month is required to be 32% of next month's forecast sales, while the raw materials ending inventory for each month is required to be 60% of the requirements for next month's budgeted production. Finished goods and raw materials inventories at the end of June are 150 units and 3,100 square metres respectively. The business collects 45% of receivables in the month of sale and the remainder in the following month. 40% of the cost of raw materials is paid in the month of purchase and the remainder in the following month. The amount owing for purchases at the beginning of July is $50,000. In addition to raw materials and direct labour, the business has the following monthly expenses: Variable selling expenses of 5% of sales; fixed administration expenses of $12,000 including depreciation of $2,000 and wages of $9,500; and factory overheads of $20,000 including depreciation of $5,000. The business pays all cash amounts owing for these expenses in the month incurred. Outhouse Limited had a cash at bank balance of $100,000 at the end of June.
Required:
1)	Prepare a sales budget by month for the period June to September and present it in section 1, part B of the template.
(3 marks)
2)	Prepare a schedule of cash collections by month for the period July to September and present it in section 2, part B of the template.
(10 marks)
3)	Prepare a production budget by month for the period July to September and present it in section 3, part B of the template. Ensure that all necessary items including row headings are added to the template.
(10 marks)
4)	Prepare a raw materials budget for July and August and present it in section 4, part B of the template. Ensure that all necessary items including row headings are added to the template.
(10 marks)
5)	Prepare a direct labour budget for July and August and present it in section 5, part B of the template. Ensure that all necessary items including row headings are added to the template.
(5 marks)
6)	Prepare the cash budget for July and present it in section 6, part B of the template. Ensure that all necessary items including row headings are added to the template.