SEMESTER 2013

Managerial Accounting (FIN704) Assignment # 01

DUE DATE: 11TH December, 2013 MARKS: 20
LEARNING OBJECTIVES: Assignment will equip you to conduct Cost Volume Profit analysis.

Star Enterprises is an engineering firm, which is engaged in production of small engineering equipment for automobile industry. It prepares quarterly reports about sale and production of each product for comparison and profitability analysis. In last quarter, the company had to face a loss of Rs. 70,000. It is the most important problem for CEO and other higher officials of the company and they want to solve it on priority basis. One thing they want to make sure is that the target profit of every quarter must be Rs. 100,000. This profit would not only financially equip the company but also reduce the uncertainty in the financial year. Company holds a meeting to deal with the problem on urgent basis. Chief marketing manager and two directors of the company participates in the meeting. After a thorough discussion, every member of the meeting gives some solution to tackle the problem and to get the better financial result in next quarter. Suggestions furnished by the participants of meeting are as follows: Chief marketing manager: The Company should Spend Rs. 20,000 on advertising to boost the sale in order to overcome the issue. What percentage increase in sale is required to achieve the target profit? (5 marks) First Director: The Company should reduce selling price by 50 paisa per unit to create the demand of product and improve competitiveness. What percentage increase in sale is required to achieve the target profit? (5 marks) Second Director: The Company should buy a new efficient machine which can reduce the variable cost by Rs. 1.75 per unit at all level of production. Sales of the company are to remain at current levels. What is the maximum increase in fixed machine costs per quarter to justify the proposal? (5 marks) Other supplementary data to analyze the situations for decision making:

Description of cost Current fixed cost of the corporation Variable cost per unit of the corporation

Amount Rs. 270,000 per quarter Rs. 7 per unit up to 120,000 units Rs. 8 per unit excess of 120,000 units 100,000 units

Unit sale in last quarter

Suppose you are Management Accountant of Star Enterprises and the CEO of the company asks you to evaluate each proposal quantitatively so that he could make a rational decision upon the basis of your analysis. CEO has also given you a task to give the recommendation of best plan from above proposals. (5 marks) Note: solve each proposal along with required working.

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NOTE:
For acquiring the relevant knowledge, do not rely only on handouts but also watch the course video lectures and read additional material available online or in any other mode.

IMPORTANT INSTRUCTIONS:
Your discussion must be based on logical facts. The Assignment will open and close on above specified date and time. Use the font style Times New Roman and font size 12. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course. Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references. For planning your semester activities in an organized manner, you are advised to view schedule of upcoming Assignments, Quizzes and GDBs in the overview tab of the course website on VULMS. Dear students!

As you know that Pre Mid-Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.

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