ACC204 Management Accounting of Maharajan Manufacturing Pty Limited Assessment 1 Answer
In the contents, of this report, the decision will trigger the key concepts of product and production planning in relation to the Sales price, variable cost of production, total cost of production and the breakeven. Here the company, Maharajan manufacturing Pty limited is having two factories located in Port acquire, and Coffs harbours. The production capacity of Macquarie is 320 and the 400 generators per day. Further, the days are the operation of both sites are different, which will be discussed in the continuation of the report. The breakeven units for Port Macquarie and Coffs harbour are 73500 and 59000 respectively at normal production capacity. For the maximum profits, the ultimate production mix will be 107449.5: 84551 units. Here the production of Macquarie is exceeding the normal production capacity; thus, the contribution per units is considered at an overtime basis, and the normal production cost is ignored. However, the Coffs harbour contribution is similar to the normal production capacity.
Contribution margin per unit
The contribution margin is the portion of selling price remains in hand to pay off the additional or indirect cost along with the profit segments. The contribution per unit can be calculated by deduction all variable product cost such as labour, material and specific overheads of manufacturing or selling a single product. However, the fixed cost will remain indifferent in the mode of production; thus, it is irrelevant for the companies to consider the fixed cost in case of contribution calculation. In the given case, the contribution margin from producing the same product from different factors are incurring the different variable cost and resulting in different contribution margin. In addition to that, the factors are having a production capacity of 96000. Production beyond that will be incurring additional variable expenses (Rizki & Sukoco, 2019).
In case of normal production, the contribution from the Port Macquarie production is $192 for each unit after deduction the variable cost amounting to be $258 per generator. Alternatively for the Coffs harbour production house, the variable cost is amounting to be $306, and the contribution is amounting to be $144 each (Kampf, Majerčák & Švagr, 2016).
In the given case the Port Macquarie is having a production capacity of 300 days, and Coffs harbour is having a production capacity of 240 operating days. If the company plans to make production beyond such operating hours, then, in that case, it will incur additional cost relating to the overtime labour cost. In case of Overtime production, the contribution per unit from the manufacturing of the Port acquire is amounting to be $183 and $120 form Coffs harbour.
Breakeven point :
Breakeven point is the point when the company covers all of its fixed cost by the use of contribution earned. Alternatively, the breakeven in the position where the company lasts in a no-profit and loss state as it is covering the variable production cost along with all relevant fixed cost. The breakeven can be calculated by dividing the total fixed cost by the contribution per unit.
If the company is operating in a normal capacity, then it will be required to sell at least 73500 units from the Port Macquarie and 59000 units out of Coffs Harbor when the total cost is $14112000 and $8496000 respectively (Barletta, Despeisse & Johansson, 2018).
In the case of overtime production,, the contribution per units is expected to decrease due to an increase in the variable cost per units. In such a case, the breakeven point will be at 77115 units for Port Macquarie and 70800 for the harbour.
Determination of Operating Income:
The calculation of operating income is related to the contribution margin, and the breakeven sales as the contribution per unit beyond the breakeven are the operating income. In the Given case, the margin of safety is that the additional sales over the breakeven for the Port are 22500 units and 37000 units of harbour based on normal production capacity, And the contribution per unit is $192 and $144 respectively. Thus if the company is selling 96000 units from each production houses, then it will earn $109714.3 and $82285.7 from the Port and the harbour respectively (Andrianto, Sudjana & Azizah, 2016).
Allocation of Production:
In case the company is targeting o produce 192000 products and targeting o maximizing its profit, then it should be allocating the production based on the contribution margin ratio.
The calculation is given as follows:
|Allocation of Production|
|Particulars||Port Macquarie||Coffs harbour|
|Contribution in case of normal production||$ 192.00||$ 144.00|
|Contribution margin ratio||57%||43%|
|Production allocation (192000* contribution margin ratio)||109714.3||82285.7|
In the given case, it is found for the overtime production the variable cost per units is being increased. However, the profitability of the company is getting increased due to the sale volume. If the demand for the product is existing, then the company should work overtime as the contribution per unit is more than the additional or incremental cost (Andrianto, Sudjana & Azizah, 2018).
In the given case, the major limitation is that the prices, demand and production are not constant as these are easily affected due to the market factors.