Group Case Study 1: Acc 720: Managerial Accounting

Page 1 / 15
ACC 720: MANAGERIAL ACCOUNTING
GROUP CASE STUDY 1

Presented by
Noraini Binti Dollah

(2019854602)
&
Mohd Irshahrezal Bin Muhamad Rasidi
(2019468836)
Page 2 / 15 ACC 720: Managerial Accounting
Group Case Study 1, Presenter: Lecturer:
Noraini (2019854602) Dr. Raja
21 September 2019 @ EMBA21JB
st
Irshahrezal (2019468836) Adzrin
Case Study Details:

There are various management accounting tools that assist management to achieve profitability. One of the
most commonly adopted tools is known as cost-volume-profit (CVP) analysis. It used to analyse how various
operating decision affect the profits. Specifically, this planning tool analyses the effects of changes in volume,
sales mix, selling price, variable and fixed costs affect the profits.
This case focusing on:

1
Analyse Cost
6 Structure 2
Determine Sales to
Identify
Earn Specific Target
Contribution & BEP
Net Income
Cost 3
5 Behaviour
CVP Graph on FC &
Margin of Safety
VC behaviour
4
Determine BEP
when any changes
in VC
Updated On: 19th September 2019
21st September 2019 @ EMBA21JB Irshahrezal (2019468836) Adzrin
The Company
Company Name : DeGreen Villa Homestay Enterprise

Business Type : Accommodation Industry (Holiday Home
Rental)
Paid-Up Capital : MYR 25,000
Business Owner : Mr. Mohd Suhairi Bin Sulong and;
Mr. Mohd Khairul Fadzli Bin Md Ali
1.0 Introduction:
DeGreen Villa Homestay (established on February, 2018) is 6000sqft unique L shape structure bungalow
located in JB, well-equipped with various facilities which able to accommodate travelers with large
companies and/ or for other specific use such as event/ functions etc. Main features of the house is 6-
bedrooms, 6-bathrooms, a pool with jacuzzi and outdoor barbecue grill.
The asset were properly controlled and maintained by owner themselves supported by trained personnel in
order to provide continuous satisfaction towards their customers.
2.0 Objective:
•Aims to provide luxury and peaceful homestay business in town.
•To produce high quality services towards customer(s) in homestay industry.

3.0 Marketing Strategies:
•Their marketing strategies through video in order to increase customer’s confidence towards their services.
•Others channel is through social platform such as Facebook, AirBnB and whatsapp.
Videos airbnb.com
Facebook Wall Page WhatsApp

4.0 Declared Facilities:

Below are details of facilities available in De Green Homestay;
No. Area Quantity Description(s)
• THREE (3) Room : Air Conditioned with Queen Size Bed.

Air Conditioned with Queen Size Bed, Bunk
• ONE (1) Room :
Bed and Sofa Bed.
1. Bedroom SIX (6)
• ONE (1) Room : Air Conditioned with TWO Single Bed.
• ONE (1) Room : Air Fan with Single Bed.
2. Bathroom SIX (6) • All equipped with water heater.
• ONE (1) Room : Air Conditioned with 33” LED TV.

:
3. Living THREE (3) • ONE (1) Room Air Conditioned with 55” LED TV.
• ONE (1) Hall Room (Good for Event/ Function Purposes).

• Swimming with jacuzzi
4. Recreational TWO (2)
• Barbecue Grill with Resting Area.
• FOUR (4) inside compound.

5. Parking TEN (10)
• SIX (6) outside compound.

5.0 The Analysis:
CVP INCOME STATEMENT DE GREEN HOMESTAY

FOR THE MONTH ENDED 31, JULY 2019
SALES Per units
De Green Villa (10 nights) RM15,000.00 RM1500.00

RM15,000.00
VARIABLE COSTS
Salary of cleaners RM1,500.00
Operation costs RM770.00 • At this point, fixed costs,
Costs of laundry RM250.00 variable costs and mixed
Allowance of mileage RM200.00
Allowance for extra job RM30.00 costs were identified.
Bill of SAJ RM100.00 • All relevant activities will
Bill of TNB
Others expenses
RM1,000.00
RM150.00
be stated into the
RM4,000.00 RM 400.00 statement.
CONTRIBUTION MARGIN RM11,000.00
FIXED COST
Rental of villa RM5,800.00
Internet Villa RM200.00
RM6,000.00
NET INCOME RM5,000.00

5.0 The Analysis (continued):
Break-even point shows how many units should be sold in order to the total costs to equal total sales
revenue, thus, the point where there is no gain or loss. Analyzing the break-even point is used to study the
relationship between cost, volume and profit.
Sales – Variable Cost – Fixed Cost = 0
RM1,500Q – RM 400Q – RM 6,000 = 0
RM 1,100Q = RM 6,000
Q = 5 (Number of days)

Sales (MYR)
• The fixed-cost element is the cost
30k
element is the cost of having the
25k
service available. The cost remain the
same in total regardless of changes in
20k the activity level.
• Variable costs are vary in total directly
15k and proportionately with changes in
TC the activity level. If the level increase,
10k
total variable costs will be increase. If
the level of activity decreases, variable
VC
costs will decrease.
• Total costs is the total economic costs
6k FC of services and is made up of VC,
which varies according to the quantity
5k
of a service produced and includes
inputs such as labour etc.
0 5 10 15 20 No. of Days
Sales (MYR)
30k • Shows both the net income and net
loss areas. Thus, the amount of
25k income or loss at each level of sales
can be derived from the sales and
20k total-cost lines.
f it • The graph is useful because the

15k
r o TC
effects of a change in any element in
10k
P •
the CVP analysis can be quickly seen.
The break-even point from intersection
VC of the total-cost line and the sales line.
BEP The break-even point in sales is found
7.5k
by drawing a horizontal line from the
FC
6k
ss break-even point to the vertical axis.
5k Lo BEP
Margin of
The break-even point in units is found
Safety by drawing a vertical line from the
break-even point to the horizontal axis.
0 5 10 15 20 No. of Days
Margin of safety shows the units sold or the sales revenue earned above the break-even point. Thus, if the
company has large margin of safety, it can still make profit even if sales decrease. Generally, low fixed costs
improve the margin of safety. The evaluation can be made by predicting future probabilities by using
estimated units or revenue or assessing current risks by taking actual numbers from ongoing processes into
consideration. If actual (expected) sales for De Green Homestay are RM22,500 .
Margin of Safety sales = Actual or Estimated units − Revenue at breakeven point

= RM22,500 – RM 7,500
= RM 15,000
Margin of Safety ratio = Margin of safety in RM / Actual sales

= RM 15,000 / RM 22,500
= 67%

Target profit can be determined by the sales revenue or number of units necessary to sell in order to reach
the target point. It is calculated by adding the desired profit to fixed costs. The target profit should not be an
absolute figure but more of a directive to follow as it assumes that fixed costs remain constant. If target net
income is RM 16,500 for De Green Homestay
Sales – Variable Cost – Fixed Cost = Target Net Income

1500Q – 1100Q- 6000 = RM16,500
1,100Q = RM 6,000 + RM 16,500
Q = 20 (Number of days)

6.0 Conclusion & Recommendation:
1. Based on the research conducted in this study, it has been observed that cost-volume-profit analysis is a veritable
tool in the decision-making process of accommodation industries and to be a commonly used tool providing
management with useful information for decision making. Cost- volume-profit analysis will also be employed on
making vital and reasonable decision when a firm is faced with managerial problems which have cost volume and
profit implications.
2. Despite CVP being a useful technique, CVP is only an approximation at best. CVP analysis needs estimates and
approximation in assembling necessary data and thus lacks accuracy and precision. It is assumed that total sales
and total costs are linear and can be represented by straight lines. In some cases, this assumption may not be
found true. For instance, if a business firm sells more units, the variable costs per unit may decrease due to more
operating efficiencies in the factory.
3. Therefore, while preparing or interpreting cost-volume profit analysis all assumptions and limitations should be
carefully considered. A series of CVP analysis, based on different sets of assumptions and circumstances may be
prepared to reflect situations prevailing in different business enterprises. When circumstances change, CVP
analysis should also be revised to reflect the changing situations. It is also necessary to have up-to-date analysis
so that it can act as a useful device in profit forecast, budgeting, cost control and managerial decision-making.

7.0 References:
• Adenji, AAdenji, (2004). An insight into Management Accounting. Value Analysis Consult Bariya, Shomulu,
Lagos.

• Durry, Colin (2008). Management and Cost Accounting. Booking Power Publishers London.

• Garrinson, R. H. and Norren, E. W. (2005). Management Accounting McGraw – Hid Irwin. Georgiev D.,
Application of Cost Volume Profit Analysis in the Hotel Industry (Based on Survey Data of High Ranking
Hotels in the North East Region of Bulgaria), Izvestio-Journal of University of Economics, Varna, 2013, 48-
60.

• Hilton, R. W (2002). Management Accounting Creating Value in a Dynamic: Business Environment. McGraw
Hill Irwin.

• Horngren, C.T., Datar, S.M., & Rajan, M. (2012). Cost Accounting: A Managerial Emphasis, 14th edition.
New Jersey: Pearson Education, Inc.

• Kaplan, R. S and Atkinson, A. A. (1998). Advanced Management Accounting. Prentice Had Upper Saddle
River, New Jersey. Lucey, Terry (2002). Costing. TJ international PadstowCornwacl. Machuga. (2012). A
Case Method Approach to Teaching Cost-Volume-Profit Analysis. Journal of Accounting and Finance, 12(5),
104-109.

• Meigs, R. F and meigs, M. A (1996). Accounting: The Basis for Business Decisions. McGraw-Hill New York.

Page 15 / 15
END OF CASE STUDY 1

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Page 1 / 15

ACC 720: MANAGERIAL ACCOUNTING

GROUP CASE STUDY 1

Noraini Binti Dollah

Case Study Details:

This case focusing on:

Company Name : DeGreen Villa Homestay Enterprise

Updated On: 19th September 2019

3.0 Marketing Strategies:

Facebook Wall Page WhatsApp

4.0 Declared Facilities:

No. Area Quantity Description(s)

• THREE (3) Room : Air Conditioned with Queen Size Bed.

• ONE (1) Room : Air Fan with Single Bed.

2. Bathroom SIX (6) • All equipped with water heater.

• ONE (1) Room : Air Conditioned with 33” LED TV.

• ONE (1) Hall Room (Good for Event/ Function Purposes).

• FOUR (4) inside compound.

Updated On: 19th September 2019

5.0 The Analysis:

CVP INCOME STATEMENT DE GREEN HOMESTAY

De Green Villa (10 nights) RM15,000.00 RM1500.00

NET INCOME RM5,000.00

Updated On: 19th September 2019

5.0 The Analysis (continued):

Sales – Variable Cost – Fixed Cost = 0

RM1,500Q – RM 400Q – RM 6,000 = 0

Updated On: 19th September 2019

5.0 The Analysis (continued):

5.0 The Analysis (continued):

f it • The graph is useful because the

5.0 The Analysis (continued):

Margin of Safety sales = Actual or Estimated units − Revenue at breakeven point

Margin of Safety ratio = Margin of safety in RM / Actual sales

Updated On: 19th September 2019

5.0 The Analysis (continued):

Sales – Variable Cost – Fixed Cost = Target Net Income

Updated On: 19th September 2019

6.0 Conclusion & Recommendation:

Updated On: 19th September 2019

Updated On: 19th September 2019

END OF CASE STUDY 1

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