Learning outcomes of this assignment:
- Identify the role of managerial accounting in decision making, and the basic terms used to present useful information. Differentiate various global perspectives on the management of accounting and contrast them against US companies.
- Compute manufacturing costs of goods sold (cogs) and examine the decision-making process pertinent to job order costing and budgeting analysis.
- Analyze cost behaviors in relation to sales volume and making ethical managerial decisions that positively affect the bottom-line. Recommend strategies for problem solving related to these decisions.
- Determine the use of the break-even time method for evaluating capital investments.
For this assignment, develop a 5 pages response containing written narrative, figures, and charts.
Milano Co. manufactures and sells three products: product 1, product 2, and product 3. Their unit selling prices are product 1, $40; product 2, $30; and product 3, $20. The per unit variable costs to manufacture and sell these products are product 1, $30; product 2, $15; and product 3, $8. Their sales mix is reflected in a ratio of 6:4:2. Annual fixed costs shared by all three products are $270,000. One type of raw material has been used to manufacture products 1 and 2. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: product 1 by $10 and product 2 by $5. However, the new material requires new equipment, which will increase annual fixed costs by $50,000.
- If the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product.
- If the company uses the new material, determine its new break-even point in both sales units and sales dollars of each individual product. (Round to the next whole unit.)
- What insight does this analysis offer management for long-term planning?