COST AND MANAGEMENT ACCOUNTING

Cost and Management Accounting

Cost and Management Accounting

PART A

A1: Break-Even Analysis for Shoe 4 Less Company]

Below is the table presenting the breakeven analysis for the company shoe 4 less:

Cost Type

Costs

Revenues

Fixed Costs

Fixed

360000

xxxxxx

Variable costs

Variable

21

xxxxxx

Revenue Per Unit

Variable

xxxxxx

30



BREAKEVEN POINTS

Units

Dollars

Costs vs Revenues

40000

1200000

The above graph presents the breakeven points for the company. The graph is presenting that the company should produce 40,000 Units of shoes in order to break-even their profit at £1,200,000.

A2: If 35,000 Units were sold, what will be store's operating profit or loss?

Cost Type

Costs

Revenues

Fixed Costs

Fixed

360000

xxxxxx

Variable costs

Variable

21

xxxxxx

Revenue Per Unit

Variable

xxxxxx

30



BREAKEVEN POINTS

Units

Dollars

Costs vs Revenues

40000

1200000



Volume analysis @

35000

Total Fixed Costs

360000

0

Total Variable Costs/Revenues

735000

1050000

Total Costs

1095000

1050000

Net Cost

45000

The above table states that if the shoe 4 less will be selling 35,000 Units they will be bearing loss of £45,000. It is also clear that they will have to bear loss because it the first part we analyzed that the company should sell at least 40,000 Units in order to break-even their profit and loss.

A3: If Sales commissions were discontinued for individual Sales people in favor of an £81,000 in fixed salaries, what would be the annual break even points in Units and revenues?

If the Sales commissions were discounted for individual Sales people in favor of £81,000 in fixed salaries then the fixed cost will be lessen by £81,000. Then the fixed cost will be £279,000.

Cost Type

Costs

Revenues

Fixed Costs

Fixed

279000

xxxxxx

Variable costs

Variable

21

xxxxxx

Revenue Per Unit

Variable

xxxxxx

30



BREAKEVEN POINTS

Units

Dollars

Costs vs Revenues

31000

930000

Above table states that if the sales commissions were discounted for individual sales people in favor of £81,000 then the break-even point will be 31,000 units and cost will be lessen to £930,000.

A4: Limitations of Break Even Analysis

Although, break-even analysis is a very useful risk assessment technique and a useful device for testing the sensitivities of business performance, the following limitations must be considered:

All costs resolved into fixed or variable

Variable costs fluctuate in direct proportion to volume.

Fixed costs remain constant over the volume range.

The selling price Per Unit is constant over the entire volume range.

The company sells only one product, or mix of products tends to remain constant.

Volumetric increase is the only factor affecting costs.

 The efficiency in the use of resources will remain constant over the period.

PART B

B1: Introduction

For this part of the report the organization I have selected is A 1 motor stores. This organization is an independent business, which has joined forces with over 250 other stores nationwide to provide the best choice, the best price and most of all the best service to online and in-store customers. All of their stores are owner-operated with professional, highly trained, courteous staff giving you expert advice and prompt service with competitive prices. A1 Motor Stores can supply everything customer need for their motoring and leisure requirements including air compressors, bulbs, wiper blades, air fresheners, sat nav, car mats, daytime running lamps, boot liners, electric polishers, alloy wheels, wheel trims, 12 volt vacuum cleaners, spark plugs, oil air and cabin filters, oils, batteries, spare parts, wheel cleaners, Steel seal, cycle accessories, etc.

B2: Research Methodology and Limitations

For the proposed study I used ...