ACC00724 Accounting For Managers For Company Promotion And Advertising : Essay Fountain


Question 1

Bonza Handtools Ltd. manufactures a popular power drill suitable for the home renovator. Financial and other data for this product for the last twelve months are as follows :
    Sales    20000 units
    Selling price     $130 per unit
    Variable manufacturing cost    $50 per unit
    Fixed manufacturing costs    $400000
    Variable selling and administrative costs     $30 per unit
    Fixed selling and administrative costs    $300000.

The directors of Bonza Ltd. want to try to increase the profitability of this product and invited senior staff to suggest how this might be done. Three suggestions have been received.
The accountant, Jan Rossi, believes that a price increase of $10 per unit is the best way to boost profits. She would spend an additional $125000 on national advertising and contends, that if this is done, sales volume would not drop appreciably from last year.
The production manager, Tom Tune, thinks that an improved quality product could increase sales volume by 25% if accompanied by an advertising campaign costing $50000 aimed at tradespeople as well as home renovators. The improved quality would add $5 per unit to the variable cost. Mr Tune believes that the price should not be increased.
The sales manager, Mary Watson, wants to undertake a promotion campaign where a $10 rebate is offered on all drills sold during the three months beginning 1 April. Normally 6000 units are sold during that period and Ms Watson believes that this could be boosted to 10000 units if an advertising campaign costing $40000 were launched late in March.

You have been asked by the Bonza board to comment on each of these three proposals. Draft a report in response to this request. You are not asked to make an outright choice, but rather to analyse the potential strengths and weaknesses. The sales volumes forecast by each staff member should be treated as estimates only and your report should examine the effects of variations in actual sales from these forecasts.
Give figures to support your comments and mention qualitative factors that may also be involved.

Question 2

The Tassie Company estimates that next year it will manufacture and sell 150000 units of its product. On the basis of that level of activity, it has budgeted for the following costs and prices per unit:

Direct Material Cost    $2.50
Direct Labour Cost      3.00
Variable Factory Overhead      1.50
Fixed Factory Overhead      2.00
Manufacturing Cost      9.00
Variable Selling and Administrative Cost      2.00
Fixed Selling and Administrative Cost         1.50
Total Cost    12.50
20% Mark-up      2.50
Selling Price            $15.00

The Company has an opportunity to bid for the supply of an additional 40000 units of its product to a government department. No sales commission (variable selling and admin. cost) is involved and no additional fixed costs will be incurred.

Give a reasoned opinion on the level of the bid that should be made in each of the following two circumstances:

(i)    The capacity of the Tassie Company’s factory is 200000 units per     year.

(ii)    The capacity of the factory is only 180000 units per year.

Question 3

ABC Ltd makes trailers. It receives a special order to produce 350 trailers for a local retail outlet. The order will take 2,100 kg of material that costs $16.10 per kg and will require 1,400 direct labour hours and 525 machine hours. The following are the expected/budgeted annual costs for ABC Ltd:

Direct labour                $327,600
Direct labour hours            25,795
Direct materials            $193,200
Indirect costs                $98,400
Machine hours                9,840


1.Calculate the overhead allocation rate: note that the process is labour-intensive
2.Calculate the total costs of the special order
3.Calculate the cost of the special order if ABC Ltd uses machine time as the basis for allocating overheads
4.Calculate the minimum price per trailer that ABC Ltd could accept.
5.Explain how segmented overhead cost pools and activity based costing can assist accurate costing for pricing purpose

Question 4

Explaining how segmenting the overheads can help in allocating overhead costs to individual jobs or services. You must support your discussion by real world examples and acknowledge the source of your information (referencing).




The Directors of Bonza Handtools Limited

Date: 04.01.2018

Subject: Evaluation of the three present proposals

Respected Sir,

After detailed elaboration regarding the three present proposals, the report was prepared through indicating the impact and advantages of the proposals within the company. These are explained under:

Proposal 1:

Considering the Jan Rossi proposal, the company’s accountant indicated that selling price requires being $140 per unit for increasing its total profit level. The table above clearly indicates that the company can observe a profit increase from $300,000 to $375,000 because of which the amount will boost to $75,000. An increased profit margin can be attained with support of suitable advertising campaign that has expenses of $125,000 (Schmidt, Götze and Sygulla 2015). Conversely, the company’s risk level might be increased in case the advertising campaign is not capable to gather attention of the consumers. Because of this, there will be significant drop in the company’s promotion and advertising expense.

Proposal 2:

The production manager of Bonza Handtools Limited that is Tom Tune, indicated that certain product quality improvement might be attained through enhancing total sales volume by 25% along with variable cost by $5 per unit. It can be supported through promotional tool use that amounts to $50,000 (Seuring and Goldbach 2013). Conversely, the advertising campaign expense is less in comparison to the first proposal that can result in increased profit of $75,000. This is due to the consumers’ satisfaction level with improvement in the product quality.

Proposal 3:

The sales manager of the company that is Mary Watson explained that the selling price each unit is needed to be decreased by $10 in the initial three months of the financial year (Rieckhof, Bergmann and Guenther 2015). In addition, the requirement for experiencing $40,000 is present as a part of advertising expense in order to attain a profit of $60,000. Moreover, such approach cannot offer any positive result for the company in the upcoming years. This due to the reason that the consumers might perceive the price of product has decreased as the company has compromised with quality of products and for this reason, the capability of revenue generation of the company can be decreased (Pettersson and Segerstedt 2013).


From the above analysis, the directors of Bonza Handtools Limited are advised to accept proposal from the production manager of the company that is Tom Tune. This is due to the reason that the manager has centered on improving the product quality along with total sales volume. This might facilitate of gathering profit of around $75,000. Despite an identical profit level as the accountant’s proposal, there is increased risk factor in the final proposal due to further concentration on the advertising and promotional campaign (Kokubu 2013).


Answer 2: The Tassie Company

The table below has been prepared relied on the recent plan along with certain proposed manufacturing capacities of the company relied on the following information:

Production capacity of the factory at 200,000 units per year:

From the above information, it is gathered that Tassie Company might produce 200,000 units each year. Moreover, the company is focused on producing 150,000 units with respect to the recent plan (Bebbington, Unerman and O’Dwyer 2014). In this scenario, the company is not required to compromise its own manufacturing level for bidding the production of 40,000 product units associated with government department. For this reason, the company might be capable to sell the goods at $10.8 each unit that is attained through totaling variable cost, fixed cost along with 20% markup on the cost price (Otley and Emmanuel 2013).

Manufacturing ability of the factory with 180,000 units each year:

Relied on the current situation, the Tassie Company might manufacture more than 180,000 units each year and conversely, the present production level is around 150,000 units each year. For this reason, the company is needed to give away 10,000 units of individual production, within which it attains profit of around $2.50 each unit in order to accept the government contrast (Drury 2013). Therefore, for initial beginning 30,000 units, the first price can be $10.80 and for some more units, the amount might be $13.30 each unit. Moreover, the overall average price of 40,000 units has been recorded at $11.43 (Klychova et al. 2015).

Importance of activity-based costing with different overhead cost pools for pricing

“Activity-based costing” and “segmented overhead cost pools facilitate in allocation of incurred amount on a particular activity relied on the department head (Kim and Sohn 2013). Considering the activity based costing, the allocated cost for activity based on the time devoted amount within the production department for products and services production. The cost pool indicates certain direct cost, while the anticipated hours might be recognized in the cost driver form. This might facilitate in cost decrease, preparing competitive pricing strategy along with a boost in business profit (Klychova et al. 2015). For instance, certain supervision charges might be apportioned relied on total staff numbers within the particular department.

Question 4: Role of overhead segmentation in allocating overhead costs to individual jobs or services

The overhead segmentation might be advantageous in cost ascertainment which is not explained within the course of normal business while anticipating overhead expenses and these are not associated with it (Fullerton, Kennedy and Widener 2014). The expenditures and income might be apportioned to every manufacturing department that might facilitate in knowing the segments of business that is increasingly profitable. In contract to that, if the company centres on a particular product, the overhead expenses might be efficient that might facilitate managers in anticipation of profitability of the product line. Moreover, the accountant of a particular company might recognise overhead that might result in differences in the product profit whether negatively or positively (Fullerton, Kennedy and Widener 2013). The overhead expenses might be separated in several expenditure headings that might facilitate cost ascertainment for certain jobs or services. Few examples are presented in a table form as below:

Variable overhead

Indirect overhead

Administrative overhead

Manufacturing overhead

· Earnings for handling of materials

· Manufacturing supplies along with tools utilities

· Costs associated with office and telephone

· Managerial salaries

· Research and development expenses

· Legal fees

· Fees of accounting and auditing

· Front office expenses

· Office supplies

· Outer audit and legal costs

· Expenses or wages

· Management and selling utilities

· Sales office and lease of administration

· Developing rent of factory

· Preservation personnel and managers’ salaries

· Factory equipments

· Property taxes

· Janitorial staffs Wages




Bebbington, J., Unerman, J. and O’Dwyer, B. eds., 2014. Sustainability accounting and accountability. Routledge.

Drury, C.M., 2013. Management and cost accounting. Springer.

Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1), pp.50-71.

Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7), pp.414-428.

Kim, J.B. and Sohn, B.C., 2013. Real earnings management and cost of capital. Journal of Accounting and Public Policy, 32(6), pp.518-543.

Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects of production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.

Kokubu, K., 2013. Material Flow Cost Accounting: Significance and Practical Approach∗. In Handbook of sustainable engineering (pp. 351-369). Springer Netherlands.

Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer.

Pettersson, A.I. and Segerstedt, A., 2013. Measuring supply chain cost. International Journal of Production Economics, 143(2), pp.357-363.

Rieckhof, R., Bergmann, A. and Guenther, E., 2015. Interrelating material flow cost accounting with management control systems to introduce resource efficiency into strategy. Journal of Cleaner Production, 108, pp.1262-1278.

Schmidt, A., Götze, U. and Sygulla, R., 2015. Extending the scope of Material Flow Cost Accounting–methodical refinements and use case. Journal of Cleaner Production, 108, pp.1320-1332.

Seuring, S. and Goldbach, M. eds., 2013. Cost management in supply chains. Springer Science & Business Media.

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