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Written Assignment Unit 3

The document discusses a managerial accounting assignment analyzing the contribution margin and break-even point for an aircraft charter business over three years. It provides calculations for contribution margin, contribution margin ratio, and break-even flights for years 1 and 2. For year 3, it calculates the number of flights needed to maintain a $10,000 profit. However, it notes that more information is needed to recommend providing a loan, as the financial statements lack stability and the low margins may challenge profit generation and payments. Limitations of the analysis include a lack of data on annual trip volumes and other typical risk factors.

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kuashask2
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74 views

Written Assignment Unit 3

The document discusses a managerial accounting assignment analyzing the contribution margin and break-even point for an aircraft charter business over three years. It provides calculations for contribution margin, contribution margin ratio, and break-even flights for years 1 and 2. For year 3, it calculates the number of flights needed to maintain a $10,000 profit. However, it notes that more information is needed to recommend providing a loan, as the financial statements lack stability and the low margins may challenge profit generation and payments. Limitations of the analysis include a lack of data on annual trip volumes and other typical risk factors.

Uploaded by

kuashask2
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Managerial Accounting

Week 3

Assignment
Since we are aware that variable costs are used to calculate the contribution margin, all of the
amounts provided are variable costs, contributing to the contribution margin. Additionally, these
costs indicate the amount of money that can be used to cover variable costs and generate profit.

The company's sales increase has not been shown in the provided data. Only a three-year
analysis has been presented, failing to demonstrate the company's potential for profit
maximization.

Also, the data don't take into account a few costs that go into figuring out the contribution
margin, like taxes, maintenance costs, and insurance. In this regard, the analyzed results are
incorrect.

1. Determine the contribution margin, contribution margin ratio, and break-even amount for
the first year. Describe how the values were chosen.

Annual Fixed Cost / Contribution Per Flight = $40,200 / $45 = 893 Flights (approximately) to
reach profitability.

Contribution per Flight = Sales price per Flight – Variable Cost per Flight = $175 – ($100 + $30)
= $45

Contribution Margin = Fixed Cost = $40,200

Contribution Margin Ratio = (Contribution per Flight / Sales price per Flight)* 100 = ($45 /
$175) *100 = 25.7 %

Annual Fixed Costs = (Loan Payment + Scheduler Salary + Dock Fees) *12 = ($350 + $2,500 +
$500) * 12 =

2. Determine the contribution margin ratio, break-even sales, and quantity for Year 2. Describe
the method used to determine the values:

Breakeven quantity = Annual Fixed Cost / Contribution per Flight = $40,200 / $41.5 =
approximately 969 flights
Breakeven sales = Break-even quantity * Sales price/flight = 969 Flights * $175 = $169,575
Contribution Margin Ratio = (Contribution per flight / Sales price per flight)* 100 = ($41.5 /
$175)* 100 = 23.7 %

Annual Fixed cost = $40,200 Contribution per Flight = Sales price per Flight – Variable Cost per
Flight = $175

3. In the event that the business does permit referrals, determine the number of flights (units)
required to maintain a profit of $10,000 in Year 3.

No. (Fixed Cost + Profit) / Contribution per Flight = (40,200 dollars plus $10,000) / $45 = 1,201
flights

4. Recommend whether the bank should provide the loan. More information is needed to
determine whether the loan should be provided or not. The low margin cost of the business
indicates that payments and profit generation will be challenging. Given that the company's
financial statements are not stable, I would not recommend that the bank provide the company
with a loan in light of the aforementioned details.

Limitations:

Limitations of the Analysis Although the data demonstrate how effective evaluating can be,
statistical surveying is still lacking, which would assist us in determining reasonable figures for
the number of annual trips the new area would provide. It is essential, for an assurance of chance,
to have statistical surveying to ensure that there will be sufficient customers willing and able to
contribute to the volume of battle appointments and the proposed cost. In addition, there are no
indications that protection from liability in the event of injury, neighborhood competition that
would increase risk, or a number of other typical information focuses have been taken into
account during market research. In addition to the lack of volume data, the information provided
above also contains a number of restrictions. In order to account for the above-mentioned
substitution costs, the equipment ought to have a deterioration cost that can be amortized over
the boat's normal lifespan, either through a number of flights.
References:

Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting.

Brewer, P. C., Garrison, R. H., & Noreen, E. W. (2015). Introduction to managerial accounting.

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