Management accounting Essay Example

Report for Toddla Buggies for the period:

2013 and 2014

Introduction

The objective of this report was to analyze the performance and position of Toddla Buggies based on the information of actual results and budget information for year 2013 and the owner’s expectations as reflected in their forecasts and expectations of demand, selling prices for the upcoming year of 2014. The actual contribution margin and profit results were determined for the year 2013. Examination of those results for each of the models shows that the most profitable stroller wasKinda-Kart as it contributed to the most sales of $7,535,592 representing 49.4% of total sales, to the business of all the three models. Yet, on the basis of contribution per unit per model, the potentially most profitable model of stroller is Bub-Mobile while the least profitable is Kinda-Kart. In terms of strategy the owners should try and promote the model with the highest level of contribution margin. This would help in maximizing the profit of the company. The management of the company should also strive to reduce the variable cost that is used to manufacture the Kinda-Kart model as it seems it has already gained the confidence of the customers.

Objectives

This report seeks to analyses the financial records of Toddla-Buggies Pty Ltd, by scrutinizing the records to assess the performance of the company. This report also, after thoroughly analyzing the records of the company, gives recommendations based on the forecasted future performance of the business.

Methodology

To come up with the conclusions and recommendations for Karen and Andrew, all the provided information about Toddla-Buggies Pty Ltd was scrutinized; tables and charts were prepared and are attached as Appendices (see Index of Appendices). These appendices contain the details that support this analysis.

Results and Analysis

Part 1: Performance Analysis

The actual sales for Kinda-Kart significantly surpassed the budgeted sales for all the quarters of the year. The sales however were lower in the first quarter of the year, probably due to the lack of awareness of the product among the customers. As the year progressed, sales slowly picked up leading to peak sales in the fourth quarter of the year. The sales for Bubble-Mobile were relatively lower than the sales for Kinda-Kart. Furthermore, the sales remained constant throughout the year. With the sales averaging around 750 units, better sales were recorded in the second quarter. This might be attributed to the seasonal sales fluctuations which can be based on the argument of weather fluctuation. This is illustrated in Appendix 2. Additionally, the unit sale prices kept changing, though not by any significant margin which can be due to the change of demand. This change in demand may be due to the changing weather conditions.

Part 2: CVP Analysis

The Cost-Volume-Profit analysis is used to determine how changes in costs and volume affect a company’s operating income and net income. Several assumptions should be made while using this analysis including; the sales price per unit is constant; variable cost per unit is constant; total fixed costs are constant; all the products produced are constant; costs are only affected because of activity changes; and the products are sold in the same mix. With these assumptions in mind, it would be important to plot the CVP graph to aide in analysis of the financial situation of Toddla-Buggies Pty Ltd. The graph is as shown in Appendix 5.

As can be observed in the graph, the break-even point sale is around $ 6,053,345. This is way above the projected sales income in the coming year. As was witnessed earlier, the unit that contributed much to the sales was the Kinda-Kart which contributed over 40 per cent of the totals sales. This demands for the management to increase the production of the unit as they engage in aggressive promotion exercises to ensure the sales of the other two units is lifted to a significant level

Index of Appendices

Appendix 1: Contribution Margin, Calculations

Overall Contribution Margin for the year 2013

Sales = Average Units Sold * Average Selling Price

= $792 * 560

= $443,520

Variable Cost = 20% * Direct Labor Cost

= 20% * $1,587,518

= $317,503

Contribution Margin = Total Sales – Variable Cost

=$443,520 – $317,503

= $126,017

Contribution Margin Ratio

Contribution Margin Ratio = Contribution Margin / Sales

= $126,017 / 443,520

Contribution Margin per unit for Kinda-Kart for the Year 2013

Contribution Margin per Unit = Selling Price per Unit – Variable Cost per Unit

= $448 — $322.01

= $125.99

Contribution Margin per Unit of Bub-Mobile for the Year 2013

Contribution Margin per Unit = Selling Price per Unit – Variable Cost per Unit

= $720 – $468.86

= $251.14

Contribution Margin per Unit of Travel-Mate for the Year 2013

Contribution Margin per Unit = Selling Price per Unit – Variable Cost per Unit

= $520 — $278.36

= $241.64

Appendix 2: Performance Analysis: Unit Actual and Budgeted Sales

Kinda-Kart

Bubble-Mobile

Travel-Mate

February

September

November

December

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From the above chart, it is clear that the company experienced significant sales for the kinda-kart model, a trend which continued steadily towards the fourth quarter of the year 2013. Although this is the trend, the bubble-mobile model had the most contribution margin. This means that bubble-mobile experienced much of profit of the company.

Appendix 3: The CVP Analysis: Contribution Margin, Cost and Profit for all Models for the Year 2013

Contribution Margin

Kinda-Kart

Bub-Mobile

Travel-Mate

Appendix 4: The CVP Analysis: Average Sales per Unit

Average Sales

Average Units

Fixed Cost

Appendix 5: Break-even sales for all Models

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References

  1. Cost-Volume-Profit Analysis, (2013), Retrieved May 22, 2014, from http://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/cost-volume-profit-relationships/cost-volume-profit-analysis

  2. Finance Formulas, (2012), Retrieved May 22, 2014, from http://www.financeformulas.net/Contribution-Margin.html

  3. Managerial Accounting, (2012), Retrieved May 22, 2014, from http://wserver.scc.losrios.edu/~burbagg/1Bnotes.html

  4. Cost and Management Accounting, (2012), Retrieved, May 22, 2014, from http://www.allbookez.com/management-accounting-notes/