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ACC204 Management Accounting of Maharajan Manufacturing Pty Limited Assessment 1 Answer

    UNIT OUTLINE

    Unit code
    		Name of unit
    ACC204
    		Management Accounting
    Unit description
    This unit develops with students their knowledge of accounting systems and techniques. These systems provide management of organisations with information for planning, controlling and for decision-making (financial accounting provides summary financial information principally for external users). Students will be introduced to a range of accounting systems that may be used in manufacturing firms and service organisations.

    Assessment Details

    Assessment 1:

    Details

    The assignment will be completed as a group assignment. Students have the option of doing it as a group or can also submit as an individual assignment, if you are unable to form a group online. Students will form groups themselves of 4-5 members.

    Before starting this assessment please read the information provided in the Plagiarism and Academic Misconduct tab on Moodle.

    Students are to exhibit knowledge of the subject matter by demonstrating:

    • Demonstrating accuracy in accounting calculations.
    • Understanding and the ability to analyse and interpret the information from the calculations undertaken.
    • Breadth of quality of analyses and providing appropriate guidance to management decision making.
    • Communication – use of appropriate grammar and the use of appropriate format.

    Formatting

    You are required to consider the case study provided under the Assignment tab below and write an executive report using Word document. Your report should be set out in an appropriate format under the following headings:

    1. Executive summary – one page – an overview of the important issues and their background, and providing a summary of your findings.
    2. Analysis – details of the analysis undertake and the results. All calculations should be shown.
    3. Findings – detail and justify your findings from the analysis. Take care to recognise and describe any limitations.
    4. Action items/limitations – detail the limitations from the analysis. Identify potential areas for actions to be undertaken by the organisation.

    Assignment questions

    Maharjan Manufacturing Pty Ltd is a medium-sized manufacturing company with its administration office based in Sydney, NSW. It has been operating since 1990 and manufactures generators. The strategy of Maharjan is to provide environmentally safe generators. It has two manufacturing plants that are based in Coffs Harbour and Port Macquarie, NSW. Coffs Harbour commenced manufacturing in 1990, while Port Macquarie commenced operations in 2005. The following information are available for the two manufacturing plants.

    The Coffs Harbour plant’s production rate is 320 generators per day, while Port Macquarie is

    400. The normal and maximum annual capacity usage at both plants is 240 days and 300 days. Other details include:


    		Port Macquarie
    		Coffs Harbour
    Selling Price

    		$450.00

    		$450.00
    Manufacturing variable cost per unit
    		$216.00

    		$264.00

    Manufacturing fixed cost per unit
    		90.00

    		45.00

    Marketing variable cost per unit
    		42.00

    		42.00

    Marketing fixed cost per unit
    		57.00

    		43.50

    Total cost per unit

    		405.00

    		394.50
    Operating income per unit

    		$45.00

    		$55.5

    Fixed costs per unit are calculated based on a normal capacity usage consisting of 240 working days. This includes all fixed costs. Overtime charges increases the manufacturing variable costs when the number of working days exceeds 240. This increase is by $9.00 per unit in the Port Macquarie Plant and $24.00 per unit in the Coffs Harbour Plant.

    The Manager of Maharjan, Mr Raj Maharjan wants the production and sales increased in 2018. He has asked Mr Greg Mumford, the management accountant to work out the ideal number of generators to be manufactured to maximise production in 2018. Mr Mumford wants to take advantage of the higher operating income at the Coffs Harbour plant. He decides manufacturing of 96,000 units at each plant resulting in a plan in which Coffs Harbour would operate at a maximum capacity (320 units per day x 300 days) and Port Macquarie operates at its normal volume (400 units per day x 240 days).

    Assume you are Mr Mumford, and prepare a report to the Manager to advise the results of your analysis in taking advantage of the higher operating income at the Coffs Harbour plant. Your report should include the following:

    1. Show how you calculated the contribution margin per unit under normal production and under overtime production.
    2. Show how you identified the break-even point for both the plants.
    3. Show how   you   determined   the   operating   income,   if   96,000   generators   are manufactured at each plant.

    Show, how the production of 192,000 generators should be allocated between the two plants to maximise the operating income for Maharjan Manufacturing Pty Ltd.

    Answer

    Assessment 1: 

    Executive Summary: 

    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.

     Analysis:

    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). 

    Normal production:

    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).

    Overtime Production:

     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
    ParticularsPort MacquarieCoffs harbour
    Contribution in case of normal production  $                192.00  $             144.00 
    Contribution margin ratio57%43%
    Production allocation (192000* contribution margin ratio)109714.382285.7

    Findings: 

    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).

    Action Items/Limitation

    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.

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