ACC 206 Week 4- Fraud Case 18-1
ACC 206 Week 4- Fraud Case 18-1 fin571
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Date Created: 11/11/15
Week 4 DQ39s ACC206 Principles of Accounting Tutorial Ashford University Required Readings 1 Chapter 18 ActivityBased Costing and Other Cost Management Tools 2 Chapter 19 Cost VolumePro t Analysis Discussions ActivityBased Costing and Other Cost Management Tools Fraud Case 18 1 Fraud Case 181 Solution 1 ABC data can be used to highlight areas where costs are out of control where cost savings should be considered or more efficient operations should be looked into They also can be used for budgeting analyzing profitability of various products and for pricing decisions 2 If a company has an audit committee an employee can usually contact them anonymously If however upper management is in on the scheme the employee is in a very weak position and should consider like the case above getting out Alternatively an employee could tip off either the outside auditors or law enforcement CostVolumePro t Analysis Discuss how the following affect the breakeven point increase or decrease in unit sales price increase or decrease in variable cost per unit increase or decrease in xed costs Costvolumeprof39it CVP analysis is used to determine how changes in costs and volume affect a company39s operating income and net income In performing this analysis there are several assumptions made including 0 Sales price per unit is constant 0 Variable costs per unit are constant c Total fixed costs are constant 0 Everything produced is sold 0 Costs are only affected because activity changes 0 If a company sells more than one product they are sold in the same mix Contribution margin and contribution margin ratio Key calculations when using CVP analysis are the contribution margin and the contribution margin ratio The contribution margin represents the amount of income or profit the company made before deducting its fixed costs Said another way it is the amount of sales dollars available to cover or contribute to fixed costs When calculated as a ratio it is the percent of sales dollars available to cover fixed costs Once fixed costs are covered the next dollar of sales results in the company having income The contribution margin is sales revenue minus all variable costs It may be calculated using dollars or on a per unit basis If The Three M39s Inc has sales of 750000 and total variable costs of 450000 its contribution margin is 300000 Assuming the company sold 250000 units during the year the per unit sales price is 3 and the total variable cost per unit is 180 The contribution margin per unit is 120 The contribution margin ratio is 40 It can be calculated using either the contribution margin in dollars or the contribution margin per unit To calculate the contribution margin ratio the contribution margin is divided by the sales or revenues amount Eum39irtriburiun Margin 5 Fur um yir il llfill 132515 EE LEI frantiribmitrn Margin 7 SUIMIUI SL2 Ennfl rihutinn Margin HEW EIJEI39EL39FlhLlfi il Margin Hm llll 2 LEI 39 4W a lmquot Sal25 m 33m 5 Breakeven point The breakeven point represents the level of sales Where net income equals zero In other words the point Where sales revenue equals total variable costs plus total fixed costs and contribution margin equals fixed costs Using the previous information and given that the company has fixed costs of 300000 the breakeven income statement shows zero net 1ncome The Three M39s Inc BreakEven Income Statement Revenues 250000 units x 3 750000 Variable Costs 250000 units x 180 M Contribution Margin 300000 Fixed Costs w Net Income o This income statement format is known as the contribution margin income statement and is used for internal reporting only The 180 per unit or 450000 of variable costs represent all variable costs including costs classified as manufacturing costs selling expenses and administrative expenses Similarly the fixed costs represent total manufacturing selling and administrative fixed costs Breakeven point in dollars The breakeven point in sales dollars of 750000 is calculated by dividing total fixed costs of 300000 by the contribution margin ratio of 40 muk Evem E quotfinal Fixedi mlg a Sg n a El n m 53quot35 HEW Cimtributlun Margin limit m 411 5 quot Another way to calculate breakeven sales dollars is to use the mathematical equation Emiliewen Dollars Variable Primed Emu In this equation the variable costs are stated as a percent of sales If a unit has a 300 selling price and variable costs of 180 variable costs as a percent of sales is 60 180 300 Using fixed costs of 300000 the breakeven equation is shown below Brcrnkeeven DUHEHTE 11 riahlu Cram 42 Hand Emma 31 fl E Elli fli ul a Sr lliim ll AK 311 lllil E Human 4 DE 3 Ef Breakemu SEIEE The last calculation using the mathematical equation is the same as the breakeven sales formula using the fixed costs and the contribution margin ratio previously discussed in this chapter Breakeven point in units The breakeven point in units of 250000 is calculated by dividing fixed costs of 300000 by contribution margin per unit of 120 Er hr l m T lhlvl WEEHJCUHEH a E l Uii il Ctia39mtrihulaitm Margin Per Unit MEL E gt l units The breakeven point in units may also be calculated using the mathematical equation Where X equals breakeven units Breaka un Sales Lini15 Sales E warm Emu Fixed Cums EEEIJUK El Sl l El Elli 5 all E E ul l EmiliaFEE Units Again it should be noted that the last portion of the calculation using the mathematical equation is the same as the first calculation of breakeven units that used the contribution margin per unit Once the breakeven point in units has been calculated the breakeven point in sales dollars may be calculated by multiplying the number of breakeven units by the selling price per unit This also works in reverse If the breakeven point in sales dollars is known it can be diVided by the selling price per unit to determine the break even point in units e i i E39UMEHLJ l ERIJUIEI l Lime arm Lil Graph EIE39HLEHEVEEH ILJ nits J5 Fmtil Elma quot111ml Emu r Win able Canaan M Fima n CI EUJHLJD 39 l q i T l
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