Final Examination

Batch Name Course Name : GMBA Apr 11 : Management Accounting GAPR11MM174 B

Raguraman Shenbagarajan

SPJCM Honor Code: I will represent myself in a truthful manner I will not fabricate or plagiarize any information with regard to curriculum I will not seek, receive, or obtain an unfair advantage over other students I will personally uphold and abide, in theory and practice, the values, purpose, and rules of the SPJCM Honor Code I will respect the rights and property of all in the SPJCM community

I certify that I have adhered to the Honor Code of the SPJCM in completing this assignment. Signature: Date: June 1, 2011

To be filled by the Evaluator only Score Obtained:

Section B Terry smith Law Company

Fixed costs Based on the data provided in the case the following fixed cost are derived per annum
F e c s p ry a ix d o t e e r Advertising Annua O e R l ffic enta l PropertyInsura e nc U tilities Ma c e insura e lpra tic nc O e equipm / yea ffic ent r T l wa es ota g 400 900 180 600 200 70 300 70 100 800 100 50 578 690 1890 448

Since the office equipment has 4 years of use, the cost was divided to 4 years. The detailed working of calculation of wages is shown in the table below
W g s/ h u R g la tim / ae o r eu r e (re u r) g la ya er Lwe a yr P ra g l a le a L g l s c ta e a e re ry C rk- re e tio is le cp n t 25 20 15 10 5760 5760 5560 5560 R g la w g W g s/ h u eu r ae ae or P ry a e er ( v rtim ) oe e 144000 115200 83400 55600 0 0 22.5 15 Oe v rtim e O e e T ta E rn g/ v tim o l a in /ya er wg / ya ae e r ya er 0 0 200 200 0 0 4500 3000 144000 115200 87900 58600 F g b n fits A n a E rn g/ rin e e e n u l a in (4 % 0 ) ya er 57600 46080 35160 23440 201600 161280 123060 82040 578 690

Variable costs
Variable cost Office supply / client

Breakeven calculation
No of da opera ys tion No of workhours/ da y No of workhoursinayea r No of c lients/ da y Ma No of clients / yea x r Avera e fa g voura judg ent ble em E rning from fa a s voura judg ent (3 % ble em 0 ) 30 6 1 6 56 70 5 0 100 80 20 00 60 0

E rning fromInitia c a s l onsula tionpric / client e E rningfromfa a voura judg ent / c ble em lient (2 % 0 ) T l possible ea ota rningper client Va le c per c riba ost lient C ontribution m rg a in B keven (no of clients) rea

3 0 10 2 10 5 4 16 4 111 0 7 .1

Considering each client has a potential to bring 600$ additional revenue through favorable judgment but the probability is only 20% hence earning through favorable judgment per client is 120$ Hence Terry law firm requires 10171 clients to breakeven in the first year of operation. Safety Margin calculation
B keven(no of c rea lients) B kevenrev rea enue Ma um(budg xim eted) revenue possible Ma inof sa rg fetyinD rs olla Ma inof sa rg fety 111 0 7 .1 1264 556 2000 700 1736 143 4 .4 % 3 9

Margin of safety is defined as Budgeted revenue Breakeven revenue Terry law firms margin of safety is 1174336 Margin of safety defines if the budgeted revenues are above breakeven and falls how far they can fall below before breakeven point is reached. Operating leverage
T l possible ea ota rningper c lient Fixedc / c ost lient (budg eted) @1 0 0client/yea 80 r Va le c per c riba ost lient O pera tinginc e per c om lient C ontributionm rg a in O pera tinglev g era e 10 5 8 .4 8 9 2 98 4 6 .5 1 1 3 01 16 4 2 912 .2 9 7

The Operating leverage is 2.29

Whenever the no of clients increase i.e. revenue increase by say a percentage 50% the Contribution margin will also increase by 50%. However the operating income will increase by 2.29 X 50% = 114.5%

Section B World Gourmet Coffee company

b. Product cost and selling price

Ma nufa turingoverhea / produc c d t P o u tc s in u in tr d n l m th d r d c o t g s g a itio a e o D irect m teria c (/lb) a l ost D irect la c (/lb) bor ost Ma nufa turingoverhea c d T l c (/lb) ota ost S ellingPric (/lb) e 200 000 Kn oa 3 .2 0 .3 1 6741 .9 0 8 3 4 5 6741 .4 0 8 3 4 7 9090 .0 9 1 6 8 M la s n a y ia 4 .2 0 .3 1 6741 .9 0 8 3 4 6 6741 .4 0 8 3 4 8 9090 .3 9 1 6 8

2. Activity base approach The unit costs are derived as under,

A t it c iv y Purc sing ha Ma teria ha l ndling Q lityc ua ontrol R sting oa B lending Pa ka ing c g T l Ma ota nufa turingover-hea c c d ost C s Div r ot r e Purc se orders ha S etups B tc a hes R stinghours oa B lendinghours Pa ckinghours B d e e a tiv y u g t d c it 15 18 10 80 70 2 910 60 360 30 200 60 B d ee c s u gt d ot 590 700 700 200 140 400 910 600 360 300 200 600 3000 000 U itC s n ot 50 0 40 0 20 0 1 0 1 0 1 0

The activities are further traced as under,

B etedS les(lb) udg a B tc size (lb) a h No of ba hes/ produc line tc t S etups(Per B tc a h) T l No of S ota etups Purc se order size (lb) ha No of Purc se orders ha R stingtim ( Q / 1hour) oa e ty T l R sting hours/ produc (hrs) ota oa t B lendingtim ( Q / 0 hour) e ty .5 T lB ota lendinghours/ produc (hrs) t Pa ka ingtim (Q / 0 hour) c g e ty .1 T l Pa g tim / product ota cka ing e

Kn oa 20 00 50 0 4 3 1 2 50 0 4 10 0 2 0 10 0 1 0 10 0 2

M la s n a y ia 100 000 100 00 1 0 3 3 0 200 50 4 10 0 10 00 10 0 50 0 10 0 10 0

The selling price based on activity is calculated as under,

A t it B s dc s in fo o e h a s c iv y a e o t g r v r e d B etedS les(lb) udg a Purc singc (@5 0 ha ost 0 /order) Ma teria ha l ndlingc (@4 0 ost 0 /setups) Q lityc ua ontrol (@2 0 tc 0 /ba h) R sting(@1 /hour) oa 0 B lending(@1 /hour) 0 Pa ka ing(@1 /hour) c g 0 T l Ma ota nufa turingoverhea c d Ma nufa cturingoverhea (/lb) d D t Ma irec teria c (/lb) l ost D t la c (/lb) irec bor ost T l c (/lb) ba on AB ota ost sed C S ellingPrice (/lb) ba on AB sed C Kn oa 20 00 20 00 40 80 80 0 20 0 10 0 2 0 72 90 3 6 .9 3 .2 0 .3 7 6 .4 9 9 .6 8 M la s n a y ia 100 000 20 00 100 20 20 00 100 00 50 00 10 00 300 20 0 2 .3 4 .2 0 .3 4 2 .8 6 6 .2 6

Kona costs 9.698$ per lb and Malaysian costs 6.266$ per lb under the new approach.