Maharjan Manufacturing Pty Ltd: Essay Analysis, Findings, And Allocation Plan.

Calculation of Contribution Margin

The assignment must be completed as a group assignment for face to face students. Distance students have the option of doing it as a group or can also submit as an individual assignment, if you are unable to form a group online. Face to face students will be allocated into groups of 4-5 members by your respective Lecturer. Distance students can form groups themselves via the discussion forum on Moodle.

Before starting this assessment please read information provided in the Plagiarism and Academic Misconduct tab on Moodle.

Students are to exhibit knowledge of the subject matter by demonstrating:

Demonstrating accuracy in accounting calculations.

Understanding and the ability to analyse and interpret the information from the calculations undertaken.

Breadth of quality of analyses and providing appropriate guidance to management decision making.

Communication – use of appropriate grammar and the use of appropriate format.

Correctly using the APA referencing system to cite academic sources in-text and in the reference list. Sufficient sources used – minimum of 4-6 references.

Allocation of marks

Please use the marking criteria sheet provided separately as a guideline for how marks will be allocated. Please ensure that you use the correct referencing style (APA style) as stated in the Unit Profile.

Formatting You are required to consider the case study provided under the Assignment tab below and write an executive report using Power Point. Your report should be set out in an appropriate format under the following headings:

1. Executive summary – one page – an overview of the important issues and their background, and providing a summary of your findings.

2. Analysis – details of the analysis undertake and the results. All calculations should be shown.

3. Findings – detail and justify your findings from the analysis. Take care to recognise and describe any limitations.

4. Action items/limitations – detail the limitations from the analysis. Identify potential areas for actions to be undertaken by the organisation.

5. The report must not exceed 8 Power Point Slides (excluding references and appendices, if any) using the Times New Roman Font, font sizes between 16- 18

Submission requirements You must submit your assignment in Power Point format electronically through the secure upload facility in the Moodle system. Please do not email your assignment to your lecturer or the Unit Coordinator. Please ensure all details are complete in the Cover sheet and ensure that it is the FIRST page of your assignment.

Break-Even Point

These are the minimum requirements as outlined in the marking criteria available on the moodle site. However, students should note that satisfactorily meeting the minimum requirements will typically only result in the minimum pass grade being awarded. Higher grades will be awarded for students that exceed these minimum requirements. See the marking criteria for further details.

Assignment questions Maharjan Manufacturing Pty Ltd is a medium-sized manufacturing company with its administration office based in Sydney, NSW. It has been operating since 1990 and manufactures generators. The strategy of Maharjan is to provide environmentally safe generators. It has two manufacturing plants that are based in Coffs Harbour and Port Macquarie, NSW. Coffs Harbour commenced manufacturing in 1990, while Port Macquarie commenced operations in 2005. The following information are available for the two manufacturing plants.

The Coffs Harbour plant’s production rate is 320 generators per day, while Port Macquarie is 400. The normal and maximum annual capacity usage at both plants is 240 days and 300 days. Other details include:

Macquarie Coffs Harbour Selling Price $450.00 $450.00 Manufacturing variable cost per unit $216.00 $264.00 Manufacturing fixed cost per unit 90.00 45.00 Marketing variable cost per unit 42.00 42.00 Marketing fixed cost per unit 57.00 43.50 Total cost per unit 405.00 394.50 Operating income per unit $45.00 $55.5

Fixed costs per unit are calculated based on a normal capacity usage consisting of 240 working days. This includes all fixed costs. Overtime charges increases the manufacturing variable costs when the number of working days exceeds 240. This increase is by $9.00 per unit in the Port Macquarie Plant and $24.00 per unit in the Coffs Harbour Plant.

The Manager of Maharjan, Mr Raj Maharjan wants the production and sales increased in 2018. He has asked Mr Greg Mumford, the management accountant to work out the ideal number of generators to be manufactured to maximise production in 2018. Mr Mumford wants to take advantage of the higher operating income at the Coffs Harbour plant. He decides manufacturing of 96,000 units at each plant resulting in a plan in which Coffs Harbour would operate at a maximum capacity (320 units per day x 300 days) and Port Macquarie operates at its normal volume (400 units per day x 240 days

Assume you are Mr Mumford, and prepare a report to the Manager to advise the results of your analysis in taking advantage of the higher operating income at the Coffs Harbour plant. Your report should include the following: 1. Show how you calculated the contribution margin per unit under normal production and under overtime production. 2. Show how you identified the break-even point for both the plants. 3. Show how you determined the operating income, if 96,000 generators are manufactured at each plant. Show, how the production of 192,000 generators should be allocated between the two plants to maximise the operating income for Maharjan Manufacturing Pty Ltd.

Maharjan Manufacturing Pty Ltd is the medium sized company having its administration office based in Sydney, NSW. The company is engaged in the operating and manufacturing of generators since the year 1990. the company has 2 manufacturing plants those are based in Port Macquarie and Coffs Harbour, NSW.The manager of the company  wants to enhance the sales and production in the year 2018. the main issue of the case is to decide about increasing the production and allocation of the increased production to 2 units. 

Analysis

Calculation of contribution margin

Normal condition –

The contribution margin or the $ contribution per unit is selling price of the product reduced by the variable cost per unit for the product (Pettersson & Segerstedt, 2013). Contribution signifies the sales revenue portion that is not absorbed by the variable cost and is left for covering up the fixed cost. In the above solution, the contribution margin is computed through deducting the variable manufacturing cost, variable marketing cost and variable manufacturing overtime cost from the sales price per unit (Drury, 2013).

Break – even point –

Break – even point is the point at which the total cost of the product equals to the total revenue of the product. At the break – even point there is no profit or no loss as the revenue and costs are equal. The break – even point is calculated through dividing the fixed cost per unit of the product by variable cost per unit of the product (Potkany & Krajcirova, 2015).

Here in the given case, total fixed cost for Port Macquarie plant is $ 14,112,000 and the variable cost per unit $ 258. Therefore, break – even point will be $ 14,112,000 / $ 258 = 54,698 units approximately. On the other hand, total fixed cost for Coffs Harbour plant is $ 67,96,800 and the variable cost per unit $ 306. Therefore, break – even point will be $ 67,96,800 / $ 306 = 22,212 units approximately (Guarini, 2013).

Findings

In the given case, total fixed cost for Port Macquarie plant is $ 14,112,000 and the variable cost per unit $ 258. Therefore, break – even point will be $ 14,112,000 / $ 258 = 54,698 units approximately. On the other hand, total fixed cost for Coffs Harbour plant is $ 67,96,800 and the variable cost per unit $ 306. Therefore, break – even point will be $ 67,96,800 / $ 306 = 22,212 units approximately (Guarini 2013).

Allocation of 192,000 units production –

  Optimal production plan is to produce 120,000 units at Port Macquarie and balance (192000 – 120000) = 72,000 units in Coffs Harbour. The reason behind this allocation is that it will utilize the maximum capacity that is (300 days * 400 units) for Port Macquarie and the contribution per unit for this plant are higher than Coffs Harbour.

The contribution margin is higher while 120,000 units are produced at Port Macquarie unit and 72,000 units are produced at Coffs Harbour unit. Therefore, the operating income will also be higher at this production allocation level as the fixed costs remain unchanged irrespective of the units produce at each plant.

Action items or limitations

The main problems faced during completing the task was that no details regarding the  workers for any of the plants. However, before taking the final decisions regarding allocation of additional production details regarding the workers would have been provide more clear picture as the payment to workers is one of the major expenses for manufacturing units. Further, possibilities may be there that the workers for one plant is easy to engage and may be difficult for the other. Therefore it was the limitation while making the analysis and providing the findings.

Reference 

DRURY, C.M. (2013). Management and cost accounting. Springer.

Guarini, G. (2013). Technological break-even point and labour productivity: theoretical and empirical aspects. Journal of Applied Economic Sciences, 8(2), pp.198-209.

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

Potkany, M. & Krajcirova, L. (2015). Quantification of the volume of products to achieve the break-even point and desired profit in non-homogeneous production. Procedia Economics and Finance, 26, pp.194-201.