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Learning Guide Unit 3

Site: University of the People

BUS 5110 Managerial Accounting -
Course:
AY2021-T4
Book: Learning Guide Unit 3
Printed by: Haitham Elhassan
Date: Saturday, 5 June 2021, 1:13 PM

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Learning Guide Unit 3 https://my.uopeople.edu/mod/book/tool/print/index.php?id=241118

Description

Learning Guide Unit 3

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Learning Guide Unit 3 https://my.uopeople.edu/mod/book/tool/print/index.php?id=241118

Table of contents

Overview

Introduction

Reading Assignment

Discussion Assignment

Written Assignment

Portfolio Activity

Checklist

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Overview

Unit 3: Cost Analysis Models

Topics:

Contribution Margins
Break-Even Analysis
Cost-Volume-Pro�t Models

Learning Objectives:

By the end of this Unit, you will be able to:

1. Explain how contribution margins are calculated and what their values represent.
2. Determine break-even points under di�erent CVP scenarios.
3. Assess CVP values in conjunction with �nancial statements.

Tasks:

Peer-assess Unit #2 Assignment

Read through the Learning Guide and the Reading Assignment
Complete the Discussion Assignment by posting in the Discussion Forum
Respond to and rate three of your fellow classmates’ posts in the Discussion Forum
Complete and submit the Case Study/ Written Assignment
Complete the Portfolio Assignment

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Introduction

Now that we understand the various cost components, we can apply that information for use in
management decision-making. Is the sales price enough to cover �xed and variable costs? How
many units must be made in order to recover costs? To make a target pro�t? To e�ectively use the
cost data, we must become familiar with important analyses that are used to understand how well
products contribute to overall pro�ts.

In this unit, we are introduced to contribution margin, break-even analysis, and cost-volume-pro�t
analysis. The contribution margin is how much a product contributes to covering �xed costs.
Break-even is the point at which both variable and �xed costs are recouped through pricing, with
no amounts left over. Both contribution margin and break-even analyses are part of cost-volume-
pro�t analyses (CVP); however, in addition, CVP can be further expanded to determine how
changes in prices, costs, and volume impact pro�ts. CVP can also be used to determine the
volume needed to make a targeted pro�t, which can be expressed in both units and sales dollars.

As you will see, these analyses are critical for management decisions. For example, they can be
used to determine if the price of a product should be increased or if a new product should be
manufactured. Further, they can be used to determine if a product line should be continued.

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Reading Assignment

1. Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. https://library.ku.ac.ke

/wp-content/downloads/2011/08/Bookboon/Accounting/managerial-and-cost-accounting.pdf

Chapter 8 

This text explains cost-volume-pro�t analysis with break-even and contribution margin examples
and further details on how to determine targeted income levels.

2.  Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. https://2012books.lardbucket.org
/books/accounting-for-managers/index.html

Chapter 6 – How is Cost-Volume-Pro�t Analysis Used for Decision Making?

This text also explains various CVP analyses and illustrates them with applied examples.

Optional Video

1. Walden, H. (2017, January 12). Cost Volume Pro�t (CVP) Analysis - Example [Video].YouTube.

Cost Volume Pro�t (CVP) Analysis - Ex…

 (9:41).

This video illustrates and explains the e�ects on revenues, costs, and income of changing di�erent
variables using CVP analyses.

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Discussion Assignment

In the discussion forum you are expected to participate often and engage in deep levels of
discourse.  Please post your initial response by Sunday evening and continue to participate
throughout the unit. You are required to post an initial response to the question/issue presented
in the Forum and then respond to at least 3 of your classmates’ initial posts.  You should also
respond to anyone who has responded to you. 

Your Discussion should be a minimum of 250 words in length and not more than 450 words.
Please include a word count. Following the APA standard, use references and in-text citations for
the textbook and any other sources. 

Refer to the manufacturing company you selected for the Unit 2 Discussion and explain how you
would determine the company’s contribution margin and contribution margin percent. In your
initial post include the following:

Identify which speci�c variables should be included in the calculation.

Illustrate your explanation by calculating the contribution margin and contribution margin
percent using hypothetical values.
Explain what your calculated results tell you about the company’s sales and cost structure.

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Written Assignment

Submit a paper which is 3-4 pages in length (no more than 4-pages), exclusive of the reference
page. The paper should be double spaced in Times New Roman (or its equivalent) font which is no
greater than 12 points in size. The paper should cite at least three sources in APA format.  One
source can be your textbook.

In this paper, please discuss the following case study. In doing so, explain your approach to the
problem, support your approach with references, and execute your approach. Provide an answer
to the case study’s question with a recommendation.

You are the owner of a parasailing company that is expanding operations to a new beachfront
location, and you need to prepare a 3-year analysis for the bank that may loan you the funds to
purchase your boat and parasailing equipment. A lot of business is done on a referral basis,
where a company pays a fee to a 3rd party to send them customers. However, because of your
well-established reputation, you already have received requests for “�ights” to be scheduled as
soon as you open the new location. Therefore, you expect to break-even the �rst year but must
calculate the number of �ights needed. You also need to determine the new break-even point in
Year 2 if the location allows referrals, which you believe will cost on average about 2% of the sales
price overall. Finally, you need to determine the volume needed to have $10,000 in pro�t in Year
3. The following information is available:

Sales price per �ight $175

Estimated loan payment per month $350
Fuel costs per �ight $100
Full-time scheduler salary $2,500 per month
Boat crew per �ight $30
$500 per month dock fee and use of a small o�ce on the pier

Requirements:

Calculate the Year 1 break-even quantity, contribution margin per unit, and contribution
margin ratio. Explain how the values were determined.
Calculate the Year 2 break-even quantity, break-even sales, and contribution margin ratio.
Explain how the values were determined.
Determine the number of �ights (units) needed to retain a pro�t of $10,000 in Year 3,
assuming the company does allow for referrals.
Recommend if the bank should issue the loan.

Superior papers will:

Perform all calculations correctly.

Articulate the approach to solving the problem.
Explain the relationship of the costs to the concept of contribution margin.
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Discuss any limitations of the data, including what may be missing.
Conclude on whether the bank should issue the loan.

Be sure to use APA formatting in your paper.  Purdue University’s Online Writing LAB (OWL) is a
free website that provides excellent information and resources for understanding and using the
APA format and style. The OWL website can be accessed here: http://owl.english.purdue.edu
/owl/resource/560/01/

This assignment will be assessed using the BUS 5110 Unit 3 Written Assignment rubric.

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Portfolio Activity

This week has focused on using several cost analysis tools to determine how well products
contribute to a company’s pro�tability. However, all of these tools are internally used and not
required to be published outside of an organization. Instead, external stakeholders rely on the
three key �nancial statements reviewed in Unit 1:

Income Statement
Balance Sheet
Statement of Cash Flows)

If a company’s CVP analyses showed it was not operating at break-even, where on the �nancial
statements might one be able to see this impact (i.e., speci�c line items on the statements)?

As portfolio activities are to be self-re�ective, please make sure to connect the portfolio
assignment to:

Your personal experiences

Course readings and any external readings.
Discussion forum posts or other course objectives that tie into your re�ection.

The Portfolio Activity entry should be a minimum of 500 words and not more than 750 words. Use
APA citations and references if you use ideas from the readings or other sources.

This assignment will be assessed using the Portfolio rubric.

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Checklist

Peer assess Unit 2 Written Assignment

Read the Learning Guide and Reading Assignments

Participate in the Discussion Assignment (post, comment, and rate in the Discussion Forum)

Complete and submit the Written Assignment

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