Wen Ltd manufactures setup boxes. The budgeted data for the next year are as follows. AC2097 Management Accounting Assignment 1

University of London

AC2097 Management Accounting Assignment 1

Lecturer: Joanna Chia

Submission Date: 29 October 2023

Students must seriously attempt and submit the answers of this assignment to Canvas, to fulfil the required coursework requirements together with the minimum 75% class attendance requirement under the UOL EMFSS regulation for the UOL examination registration.

Requirements :

• Complete this paper using Microsoft Word only (if you use other word processing software, convert them to a Microsoft Word readable file before uploading it to Canvas). This should be saved as a .doc or .docx file and then uploaded to Canvas as ONE individual file.

• Include your full name, student ID, class: (MA L44 or LP01) on the first line or header of your answer. The file name should be Student ID followed by full name in the same order as registered with SIM.

• Please backup/save your assignment and check that it is the correct file before you upload the answer file to Canvas.

• The assignment must be uploaded to Canvas on the correct course code: Management Accounting L44 or LP01. It should not be emailed to your lecturer.

Question:

Wen Ltd manufactures setup boxes.

The budgeted data for the next year are as follows:

Minimum expected sales volume: 50,000 boxes. The maximum capacity is 100,000 boxes

Selling price: $27 per box

Variable selling costs: 5% of sales revenue.

Direct materials: $5.70 per box,

Direct variable labour costs: $6 per box,

Variable manufacturing overhead costs: $5.85 per box

Fixed manufacturing costs: $90,000

Fixed selling, general and administration costs: $234,000

New Proposal:

The company is considering the following proposal, both changes expected to be made at

the same time at the beginning of the next year if the management approves it:

Changes to costs made in the new proposal:

• The variable direct labour costs of $6 per box for the production operators is proposed to

be changed to fixed monthly wages, and the total fixed direct labour costs is estimated

at $330,000 next year, and

• The current variable 5% sales commissions are proposed to be replaced with a fixed

allowance that will be included in fixed monthly salaries of the sales personnel. This will

increase total fixed sales salaries by $80,000 next year.

University of London

Required:

(a) Calculate each the following before the new proposal:

(i) Break-even point in units and sales value, (10 marks)

(ii) Sales units and sales value required to achieve the target profit after tax of

$170,150. Tax rate: 17% (10 marks)

(iii) Profit at 50,000 boxes. (5 marks)

(iv) Operating leverage at 50,000 boxes. (5 marks)

(v) Margin of safety in units, dollars and % if the budgeted sales is 50,000

boxes. (15 marks)

(b) At which level of sales will the management of the company be indifferent to the existing and new proposal? In other words, what is the sales volume that will result in the same costs and profit with or without the proposed changes? (20 marks)

(c) Advise the management of the company on whether the proposed changes should be made, with reasons supporting your recommendations. Include in your answers, the calculation of the revised breakeven point in units and dollars after the change and compare them to before the changes are proposed. (20 marks)

(d) If the new proposal was adopted and selling price is reduced by 20% to increase the sales volume to 90,000 boxes, will this strategy of increasing sales be viable? Calculate the profits and advise the management. (15 marks)

(Total 100 marks)

Note: This assignment is an internal assessment conducted by SIM and do not form part of the final UOL examinations’ marks.

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