Good Day

Please see attached my assignment, I need help with question 3, 5 and 6.

Many Thanks

Assessment: Management Accounting Cost-Volume- Profit Analysis The Redco Company manufactures two products. Information about the two product lines is as follows: Product A Product B Selling price per unit Variable costs per unit Contribution margin per unit $90 $40 45 15 $45 $25 The company expects fixed costs to be $200,000. The firm expects 60% of its sales (in units) to be Product A (a sales mix of 3:2). Required: 1. Calculate the contribution margin per package. Product A = $45 . 3=$135 Product B =$25 . 2=$50 Contribution margin per package = $135 + $50 = $185 ($200 000 + $185 000)/$185 = 2,081 packages Product A sales = 2,081 . 3. $90=$561,870 Product B sales = 2,081 . 2. $40=$166,480 Total Sales = $561,870 + $166,480 = $728,350 2. Determine the break-even point in units for Product A and Product B. $200 000/$185 per package =1,081 packages Product A units = 1,081 . 3=3,243 units Product B units = 1,081 . 2=2,162 units www.careeracademy.co.nz 1 DHA 2015 If Redco had to discontinue one of the two products - would it be Product A or Product B and why? 3. It will be Product A Generally, the lower the break-even point, the higher the profit and less the operating risk. 4. 5. What other factors should be considered when making a decision to continue or discontinue a product line or segment. Will discontinuing a segment have adverse effects on the sale of other products? Does the segment have a positive contribution margin? Can any of the fixed costs be avoided if the segment was discontinued? Can the freed up capacity be used for another purpose? The manager of Redco wants to know how much sales would be necessary to generate a before-tax profit Product A - $300,000 Unit sales 11,111 = ($200 000 + $300 000) / $45 Dollar sales $ 3,704 = ($200 000 + $300 000) / $135 Product B - $500,000 Unit sales 28,000 =($200 000 + $500 000) / $25 Dollars sales $ 14,000 =($200 000 + $500 000) / $50 6. Briefly discuss the limitations of cost-volume-profit analysis. Limitations Cost volume profit (CVP) is a short run marginal analysis it assumes that unit variable costs and unit revenues are constant, which is appropriate for small deviations from current production and sales, and assumes a neat division between fixed costs and variable costs, though in the long run all costs are variable. For longer-term analysis that considers the entire life-cycle of a product, one therefore often prefers activity - based costing or throughput accounting. www.careeracademy.co.nz 2 DHA 2015