Absorption approach is constructive for external reporting. It does not provide the competitors with too much information which they can use to their advantage such as the product cost, the material costs, the labor costs and others…
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These two important measures of profitability show that the company has made remarkable progress over the nest quarter signifying increased efficiency and effectiveness.
However, this is not the case. The statements prepared under the contribution margin rules show that the contribution margin has not improved between the two quarters. The statement prepared implied the company has contribution margin of 52% in the both the quarters, as seen in figure 5, implying that there has no increase in efficiency of controlling variable costs. Therefore, the profit net profit margin under the contribution margin statement remains 14% in both quarters. The increase in the net income under the absorption id due to the allocation of the fixed costs over a greater number of units produced. Mr. Rozen has increased the production levels from 25,000 units to 50,000 units. This has reduced the allocation of fixed costs from $24 in first quarter to $12 in second quarter. Thus the cost of goods sold has decreased by $300,000 which has increased the gross margins and the net margin. Can you make any suggestions for reporting in the future? Absorption approach is constructive for external reporting. It does not provide the competitors with too much information which they can use to their advantage such as the product cost, the material costs, the labor costs and others. Similarly, this approach considers the costs to the finished inventory as an asset on a balance sheet until it is sold. Therefore, this helps the company to improve its metrics for external stakeholders. Likewise, the Generally Accepted Accounting Principles, or GAAP, requires the publicly held companies to prepare their statements under the absorption approach. (Taylor, 2010) However, for internal users and decision-making, contribution margin approach to income statement is quite useful. Variable costing allows the internal users to understand the product cost of unit which will allow them to decrease variances between actual and budgeted amounts. This helps in controlling costs and overall profitability of the company. With this approach, the managers can make better decisions in a fluctuation sales environment and helps them to accurate the cost of productions for future periods. Likewise, this approach helps to observe an impact of each and every product on the overall profitability of the company. Some products are better absorbers of fixed costs and increase the earnings of the company. Therefore, an adequate decision can be made regarding the discontinuation of product which will least affect the earnings. (Scott, 2012) Do you think Mr. Rosen should be seriously considered for the CEO position? Why or why not? Mr. Rozen has based his decision to increase the production on inadequate information. He has not pondered hard over the impact of his decision on the company’s operations and profitability. With the increase in production, Mr. Rozen only allowed for a better allocation of the fixed costs over a larger quantity of units. This only allowed for the costs to be temporarily seen as assts on the balance sheet in the form of inventory. However, Mr. Rozen must understand that the huge amount of inventory that has been created will need to managed and properly maintained over the nest quarter for the sales in future. This will increase inventory handling costs and storage costs that will have
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Tanya should have explained that management accounting systems are planning and control systems which are usually concerned with the planning and controlling activities of the organization. Management accounting can be defined as: ‘The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information that assists executives in fulfilling organizational objectives… a formal mechanism of gathering and collecting data for the ends of aiding and coordinating collective decisions in light of the overall goals and objectives of an organization.
118,061 123,853 132,169 141,196 Closing Cash 126,620 118,061 123,853 132,169 141,196 172,700 Income Statement In ? For the six months ended September 30,20X0 Revenue 454,500 Cost of Purchases (90,900) China glass and cutlery (10,000) Bed linen and towel (10,000) Miscellaneous items including toiletries (5,000) Labor Cost (90,900) Overhead Cost (113,625) Depreciation (133,167) Losses in inventory (2,000) Net loss (92) Balance Sheet In ?
This is a financial report that focuses its analysis on two companies; Fantastic holdings limited and super retail group which previously was called Super cheap auto group limited. The report analyses the performance of the two companies over time and tries to evaluate which company between the two has good economic performance.
Break-even Analysis and Planning.Accounting for Decision Making Break-even for the two strategies at each level of output Strategy #1 Fixed Cost = $20,000,000 Selling Price = $170 Variable Cost = $35 Break-even level of output = (Keiso, 1999) Break-even level of output = = 148,148 units.
You had asked me to make a presentation on the profitability of both the units for the same period and asked me to provide you additional information on the units covering the improvement of the financial performance. I append below my item-wise report for your information.
Hence it is essential to cut down the variable costs in order to lower the break even point.
In the case of JTI, the best possible method to lower the break even point is to increase the price of the luggage sets, as
It has an extensive network of dealers in all the regions of the world. The company as of 2009 has 90 plants scattered in the different locations of the world with 198,000 employees.
Ford is an American Based company, with its head
Quick ratio only includes current assets which are readily converted to cash and hence excludes inventory. It indicates the liquid assets a company has to repay its short term debt. A company has a good liquidity position if it has a high quick ratio.
day to day activities and needs but also to liaise with Human Resources, advertising, marketing and other functional areas to determine their needs for funding in hiring, purchasing and advertising and marketing activities (Rao, 1989). This can include contacts and agreements
From the look of the reports, the company still needs key decisions to make in order for the company to maintain its positive growth since acquisition. This report evaluates the company’s status and the necessary actions that can be taken to ensure that the
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