Assignment 5 Lasa 2 Executive Presentation The Management Te

Assignment 5 Lasa 2 Executive Presentationthe Management Team Was So

The management team was so impressed with the report you submitted a couple of weeks ago, that they have asked you to prepare another report in the form of a Microsoft PowerPoint presentation which addresses additional questions they have about some of their products. They would like to use this information at the next Board meeting so they have asked you to prepare a PowerPoint presentation using the information below. They want to make sure they have talking points available when they deliver the presentation so they have asked you to use the notes section of PowerPoint to clearly explain the information presented on each of the slides. They would like for you to design a title slide which captures the audience’s attention, an introduction slide(s) which contains executive summary information, slides which support each of the four sections below including talking points, and a solid conclusion.

They have asked that you contain your presentation to approximately 15 slides. The management team may be asked to justify the information you present so it is imperative that you show your calculations. You may want to compute your calculations in Excel and copy that information into your PowerPoint.

Paper For Above instruction

Part 1: The first part involves analyzing GFI's maintenance costs over the last seven months using the high-low method to estimate fixed and variable components of maintenance costs. You will calculate these components and evaluate whether the high-low method is an effective approach for this purpose. The justification should consider the accuracy, simplicity, and limitations of this method in estimating cost behavior.

Part 2: The second part requires forecasting costs for Ms. Kelle's Dancing Elephant magazine at two production levels: 52,000 and 57,000 units. You need to determine total variable costs, variable cost per unit, total fixed costs, and fixed cost per unit for each forecast. This analysis will help assess the cost implications of different production volumes, including the impact of additional storage costs when production exceeds 55,000 units.

Part 3: In this section, you will compute the number of ping pong tables to be produced in May, considering GFI's JIT inventory policy (ending inventory equal to 10% of next month's sales) and announced ending inventory levels. Additionally, you need to explain the advantages of the bottom-up approach to budgeting over the top-down method, providing a concrete example of how a bottom-up budget might be implemented in a management setting.

Part 4: The final part focuses on assessing the relevant costs for a project involving computer assets. You will identify which costs are relevant, including the residual value of the computer if used, the cost of specialized software, and the printer cost. Based on these factors and the project’s contract value, you will determine whether the project is profitable, including detailed calculations to support your conclusion.

Paper For Above instruction

In modern managerial accounting, accurate cost estimation and budget planning are crucial for strategic decision-making. This paper addresses four key analytical problems faced by GFI and Ms. Kelle, illustrating how various costing and budgeting techniques facilitate effective management and financial planning.

Part 1: Estimating Maintenance Costs Using the High-Low Method

GFI’s maintenance costs over seven months indicate variable and fixed components. The high-low method involves selecting the months with the highest and lowest activity levels—in this case, operating hours and associated costs—to estimate cost behavior. The highest activity was July with 72 operating hours and $18,000 cost, while the lowest was August with 19 hours and $7,400 cost.

Calculations involve finding the variable cost per hour: (Cost at high activity – Cost at low activity) / (High hours – Low hours) = ($18,000 – $7,400) / (72 – 19) = $10,600 / 53 ≈ $200 per hour.

The fixed cost component can be estimated by subtracting total variable costs from total costs at either high or low activity. For July: $18,000 – (72 × $200) = $18,000 – $14,400 = $3,600. Alternatively, for August: $7,400 – (19 × $200) = $7,400 – $3,800 = $3,600. The consistent fixed cost of $3,600 indicates the fixed component is stable.

While the high-low method is straightforward, it can be sensitive to outliers or anomalous data points, reducing its accuracy. It’s effective for simple, quick estimates but may lack precision in complex scenarios. Its effectiveness depends on the stability of costs and the representativeness of the highest and lowest activity levels.

Part 2: Forecasting Costs for Varying Production Levels

Ms. Kelle’s magazine has fixed costs of $20,000 and variable costs of $40,000 at 50,000 units, indicating a variable cost per unit of $0.80 ($40,000 / 50,000). The additional storage cost of $2,000 applies when exceeding 55,000 units.

For 52,000 units: Total variable costs = 52,000 × $0.80 = $41,600. Since 52,000 is below 55,000, no additional storage cost applies, keeping total fixed costs at $20,000. The total costs: $41,600 + $20,000 = $61,600.

For 57,000 units: total variable costs = 57,000 × $0.80 = $45,600. The production exceeds 55,000, so storage costs of $2,000 are added, raising fixed costs to $22,000. Total costs: $45,600 + $22,000 = $67,600.

Hence, the forecasted costs highlight the impact of increased production on overall costs, emphasizing the importance of capacity planning in managing cost behavior.

Part 3: Production Planning & Budgeting Approaches

GFI’s estimation of the number of tables to produce in May considers current ending inventory (40,000 tables) and sales projections of 400,000 and 350,000 tables for April and June, respectively. Using JIT policy, ending inventory for May should be 10% of June sales, equaling 35,000 tables. To meet May’s sales and inventory needs:

  • Beginning inventory (April ending) = 40,000 tables
  • Desired ending inventory (June projection) = 35,000 tables

The production budget formula: Production = Sales + Ending inventory – Beginning inventory. Therefore, production for May = 400,000 + 35,000 – 40,000 = 395,000 tables.

This ensures sufficient stock while maintaining JIT principles. The bottom-up approach to budgeting involves employee-level input and detailed departmental plans, promoting accuracy and accountability. It fosters commitment and better resource allocation, as managers at lower levels contribute and understand the budget process thoroughly. For example, department managers might develop their own budgets based on operational needs, which are then aggregated at higher levels, leading to more realistic and achievable targets.

Part 4: Cost Relevance and Project Profitability

In deciding whether to proceed with the computer project, relevant costs include additional costs directly attributable to the project. The current residual value of the computer ($800) if sold is irrelevant if it’s used on the project, as resale value drops to zero upon use. The $2,000 spent on specialized software is a sunk cost—already incurred and not recoverable—thus irrelevant to decision-making.

The printer costing $400 is a relevant expense since it is a necessary purchase specifically for this project. The total incremental cost, considering the project’s contract value of $5,000, includes the cost of the software ($2,000), the computer (considering its new use), and the printer ($400). Since the resale value diminishes and only the additional costs matter, the decision hinges on whether the project’s revenue outweighs these incremental costs.

Calculations: Total relevant cost = Cost of software + Printer = $2,000 + $400 = $2,400. The opportunity cost of using the computer is $800 (since using it on this project results in zero resale value), which should be included. The total cost relevant for decision-making is $2,400 + $800 = $3,200.

Assuming the project yields $5,000, subtracting $3,200 results in a profit of $1,800, indicating the project is profitable. Careful consideration of variables and accurate costing ensures optimal resource utilization and profitability.

Conclusion

Effective cost estimation and budgeting are foundational to strategic management. The high-low method provides a simple initial estimate of cost behavior but has limitations due to sensitivity to outliers. Forecasting costs at different production levels underscores the importance of capacity management. Bottom-up budgeting enhances accuracy, employee engagement, and accountability, leading to better financial planning. Finally, assessing relevant costs for projects ensures sound decision-making, maximizing profitability and resource efficiency. Together, these analytical tools help organizations manage costs proactively and make informed strategic choices.

References

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  • Horngren, C. T., Sundem, G. L., Stratton, W. O., Foster, G., & Green, R. (2019). Introduction to Management Accounting (16th ed.). Pearson.
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  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Managerial Accounting: Tools for Business Decision Making (8th ed.). Wiley.
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  • Kaplan, R. S., & Atkinson, A. A. (2019). Advanced Management Accounting (3rd ed.). Pearson.
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