Unit 5 Module 5 M5 Assignment 1 Lasa 2 Executive

Unit 5 Module 5 M5 Assignment 1assignment 1 Lasa 2 Executive Pres

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.

Part 1: The following information is available for GFI’s maintenance cost over the last seven months. Use the high-low method to estimate the fixed and variable components of its maintenance cost. Would this be an effective way to estimate these costs? Justify your answer by explaining why this is an effective way or why it is not.

Part 2: In 2001, Ms. Kelle, the head of aerobic equipment sales, started a fitness magazine called the Dancing Elephant. The magazine sells 50,000 copies a month. The total variable costs at that volume are $40,000 and fixed costs are $20,000. An additional storage cost of $2,000 will be incurred if production exceeds 55,000 units. You have been asked to forecast the following costs for two possible production runs of (a) 52,000 units and (b) 57,000 units:

• Total variable costs
• Variable cost per unit
• Total fixed cost
• Fixed cost per unit

Provide your forecasts based on these production volumes.

Part 3: GFI manufactures ping pong tables and has a JIT policy that ending inventory must equal 10 percent of the next month’s sales. It is estimated that April’s actual ending inventory will consist of 40,000 ping pong tables. May and June sales are estimated to be 400,000 and 350,000 tables respectively. Compute the number of tables to be produced for May. Explain why a bottom-up budgeting approach is considered more effective than a top-down approach. Provide an example of how to implement bottom-up budgeting.

Part 4: Computer A has a book value of $1,500 and a current resale value of $800. Using it on a project will reduce its resale value to zero. The project is valued at $5,000, and $2,000 has been spent on specialized software for it. A printer costing $400 is needed for a different project. Discuss which costs are relevant for deciding whether to proceed. Show your calculations and determine if the project is profitable based on the given data.

The presentation must be submitted as a PowerPoint file named using the format LastnameFirstInitial_M5_A1.ppt. Submit it by Week 5, Day 5, to the designated Dropbox.

Paper For Above instruction

In this presentation, I will address four key topics that provide valuable insights into managerial decision-making processes, cost estimation techniques, budgeting approaches, and investment evaluations. The analysis combines quantitative methods with strategic considerations to support effective management practices.

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

The high-low method simplifies cost estimation by using the highest and lowest activity levels to determine the variable and fixed components of costs. For GFI's maintenance costs over seven months, the highest operating hours were 2,000 hours in April, with a maintenance cost of $2,200; the lowest was 800 hours in March, with a cost of $1,800. The variable cost per hour is calculated as:

Variable cost per hour = (Cost at high activity - Cost at low activity) / (High hours - Low hours) = ($2,200 - $1,800) / (2,000 - 800) = $400 / 1,200 = approximately $0.333 per hour.

The fixed cost component is then estimated by subtracting total variable costs at either high or low activity levels from the total cost. Using the high activity:

Fixed cost = Total cost - (Variable cost per hour  Hours) = $2,200 - (0.333  2,000) = $2,200 - $666 = $1,534.

The same calculation at low activity confirms the fixed cost estimate, validating the approach.

While the high-low method is straightforward, it has limitations, such as being affected by anomalies or outliers, making it less effective if activities are not proportional to costs or if data variability is high. Nonetheless, it provides a quick estimation that can be useful for managerial decision-making, especially when more detailed data is unavailable.

Part 2: Forecasting Costs for Different Production Volumes

Given total variable costs of $40,000 at 50,000 units, the variable cost per unit is:

Variable cost per unit = $40,000 / 50,000 = $0.80 per unit.

For production of 52,000 units:

• Total variable costs = $0.80 * 52,000 = $41,600.
• Total fixed costs remain at $20,000.
• Since production exceeds 55,000 units, an additional $2,000 storage cost applies, increasing total fixed costs to $22,000.
• Fixed cost per unit = $22,000 / 52,000 ≈ $0.42.

For 57,000 units:

• Total variable costs = $0.80 * 57,000 = $45,600.
• Total fixed costs = $20,000 + $2,000 (storage cost) = $22,000.
• Fixed cost per unit = $22,000 / 57,000 ≈ $0.386.

This forecasting shows how costs change with production volume, considering both variable and fixed components.

Part 3: Production Planning and Budgeting Approaches

The ending inventory in April is 40,000 tables, which is 10% of May sales (400,000 tables), matching the policy. The sales forecast for June is 350,000 tables. The production requirement for May is calculated by considering the beginning inventory, expected sales, and desired ending inventory:

Beginning inventory for May = 10% of June sales = 0.10 * 350,000 = 35,000 tables.
Desired ending inventory for May = 10% of June sales = 35,000 tables.
Sales for May = 400,000 tables.
Production to meet sales and inventory needs = Sales + Ending inventory - Beginning inventory = 400,000 + 35,000 - 40,000 = 395,000 tables.

Therefore, GFI should produce 395,000 tables in May to align with their JIT policy. The bottom-up approach to budgeting involves managers and employees at various levels creating detailed budgets based on their operational insights, which are then aggregated to produce a comprehensive budget. This method promotes ownership, accuracy, and motivation among staff. For example, a department manager estimates operational costs based on actual project requirements, which are compiled into a companywide budget, fostering better communication and strategic alignment.

Part 4: Relevant Costs and Profitability Analysis

The decision to undertake the project hinges on variable and avoidable costs. The resale value of $800 for Computer A is relevant; if used on the project, its resale value drops to zero, representing a $800 opportunity cost. The $2,000 spent on specialized software is a sunk cost, irrelevant for future decisions. The printer costing $400 is a relevant cost if it is specifically needed for this project and has no salvage value, representing an opportunity cost.

The direct costs include the $5,000 project value, the $800 opportunity cost of computer resale, and the $400 printer cost, totaling $6,200 in relevant costs. Since the $2,000 spent on software is sunk, it does not affect the current decision. The profitability of the project is evaluated by subtracting relevant costs from the project value:

Profitability = $5,000 - ($800 + $400) = $5,000 - $1,200 = $3,800.

The positive result indicates the project is profitable when considering relevant costs and opportunity costs.

Conclusion

This analysis demonstrates the importance of appropriate cost estimation, budgeting methodologies, and decision-making frameworks in managerial accounting. Employing accurate methods like the high-low technique, bottom-up budgeting, and relevant cost analysis enables managers to make informed, strategic decisions that enhance operational efficiency and profitability.

References

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