Managerial accounting final project

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Required: 1. Prepare a correct analysis of the changes in volume on operating income. Prepare a tabulated set of income statement at levels 200,000. 250,000. and 300,000 yo-yo. Also show percentages of operating income in relation to sales. 2. Compare your tabulation with the manager’s tabulation. Why is the manager’s tabulation incorrect as the above? Answer1: Volume in Units 200,000 250,000 300,000 Sales @ $3 $600,000 $750,000 $950,000 Unit Variable Cost@ $1.40 $280,000 $350,000 $420,000 Contribution Margin $320,000 $400,000 $530,000 Fixed Costs* $150,000 $150,000 $150,000 Operating Income $170,000 $250,000 $380,000 Operating Income Margin (%) 28.33% 33.33% 40% *Fixed Costs Fixed Manufacturing Costs $125000 Fixed Selling amp. Distribution Costs $25000 Fixed Costs $150000 Answer 2 The manager used $2.00 full cost per unit to calculate the impact of changing sales volume over the operating income which is misleading. The effect of variable cost differs with the increase or decrease in sales volume which is best described and exposed in the contribution method. The operating income as calculated by the contribution method reveals the increase of operating profit at a different rate with respect to sales than the analysis created by the manager. As per the manager’s analysis, at 200,000 sales volume the operating profit to sales percentage rests at 33.33% whereas, our analysis reveal it to be at 28.33%. Hence, manager’s analysis shows an artificially better picture of income. On the other hand, operating income to sales ratio of 31.5% is misleading as it provides a deteriorated picture of the income/sales ratio. The actual operating income margin is 40% at 300,000 level of sales. Question 2: Chapter 6 Assume that XYZ company reports the following costs to make 17.5oz bottles for its juice cocktails: QYZ company Cost of making 17.5-ounce bottles Total Cost for 1,000,000 bottles Cost per Bottle Direct materials $80,000 $0.080 Direct labor 30,000 0.030 Variable factory overhead 60,000 0.060 Fixed factory overhead 85,000 0.085 Total Costs 255,000 $0.255 Another manufacturer offers to sell XYZ the bottles for $0.25. The capacity now used to make bottles will become idle if the company purchases the bottles. Further, one supervisor with a salary of $60,000, a fixed cost, would be eliminated if the bottles were purchased. Prepare schedule that compares the costs to make and buy the 17.5-ounce bottles. Should XYZ make or buy the bottles? Answer Description Make Buy Each bottle Total Each bottle Total Purchases Costs 0.25 250000 Direct Material 0.080 80000 Direct Labor 0.030 30000 VOH 0.060 60000 Fixed Factory OH 0.060 60000 Total Relevant Cost 0.23 230000 0.25 250000 Savings on Making 0.02 20000 Conclusion: The company should make to save $20,000 as the analysis