ACC203 Managerial Accounting

Introduction

The report seeks to present pricing contribution analysis for NAU. The reports depicts the examples of cost of production encompassing variable cost, fixed cost and semi- fixed or semi- variable cost. The report seeks to present allocation of cost under various head along with computation of break-even sales and the margin under the estimated cost situation.

Analysis

Nau is an innovative clothing company which aims to transform the apparel industry. The sales projection for the company in the past has been over realistic and efforts have been made to make realistic projection for the product of the company. It has been estimated that the company shall sell 2 Million units at $ 10 per unit next year with a per unit for the apparel to be average at $ 4. The gross margin of 60% is common or in line with the industry trend. The company as an outcome shall be able to generate $ 6 as gross margin per unit.

Further, other indirect cost shall be mix of variable and fixed cost. The categorization of the same is as under:

Fixed Cost

Cost of utility is expected to be fixed and stand at $ 500,000

Salary cost is expected to be fixed and stand at 2 Million $

Marketing cost shall be fixed and has been considered at $ 1 Million

Administration cost other than salary shall be fixed at $ 0.5 Million

Variable Cost

The bonus shall be 1% of sales revenue and shall be variable

Sales commission shall be variable @ 5%

Internet click and commission expense of 2% of sales values

Based on above assumption and fact the computation of contribution margin on per unit basis and the total contribution margin has been presented as under:

Further, the computation of profit ignoring tax has been presented as under:

Based on above computation it may be inferred that computation of profit stood at 32%. The formula used is Sales Value- Variable Cost – Fixed Cost. Interest cost has been absorbed under marketing and administration cost.

Break Even Analysis

The break even analysis for the company has been computed using the formula Total Fixed Cost/ Contribution per unit.

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