ARMY INSTITUTE OF BUSINESS ADMINISTRATION (ARMY IBA)

Term Paper on
CVP Analysis, Segmented Income Statement and ABC Methods

COURSE TITLE: MANAGEMENT ACCOUNTING

COURSE CODE: ACC 7301 (EMBA)

Prepared by: Submitted to:

MD. MONIRUL S. M. Khaled Hossain

ID NO: 22133007
Assistant Professor
MD.SYFUL ISLAM Army IBA
ID NO: 22133008

MD. MOTTALEB HOSSAIN

ID NO: 22133009

PAPER SUBMISSION DUE DATE: 30-NOVEMBER-2021

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 ACKNOWLEDGEMENT

I sincerely acknowledge my debt to my course advisor SM Khaled Hossain, Assistant

professor, Army Institute of Business Administration for his valuable counseling
towards the improvement of the report. Without his encouragement, this would have
never been possible.

I am overwhelmed with gratitude to my course advisor as he helped me in terms of

propulsion and completing this term paper impeccably. The report is prepared only to
meet academic purpose not for any other reason.

MD. MONIRUL
ID NO: 22133007

MD.SYFUL ISLAM
ID NO: 22133008

MD. MOTTALEB HOSSAIN

ID NO: 22133009

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 Declaration
We hereby declare that the work presented in this internship report titled “CVP
Analysis, Segmented Income Statement, Activity based Costing Methods” is an
original work done by me under the guideline of S.M. Khaled Hossain, PhD fellow,
Assistant Professor, Army Institute of Business Administration, Savar.

No part of this report has been previously submitted to any other university /
organization for any academic certificate.

The work I have presented doesn’t violate any existing copyright and no portion of
this report is copied from any work done by anyone.

The content of the report or information collection from secondary sources. If any
misinformation appears in this report, the Bank has no more liable for this.

Sincerely,

MD. MONIRUL
ID NO: 22133007

MD.SYFUL ISLAM
ID NO: 22133008

MD. MOTTALEB HOSSAIN

ID NO: 22133009

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 Abstract
Think about a multi-product and multi-divisional manufacturing company. Suppose
the company has three product lines and operates its business through three divisional
markets we have to make a graphical presentation for the DOL & Safety of margin as
well as five possible ways to increase the profitability level for each of the product
lines for a particular year.The first part discusses with the introduction and objectives
of the study. As well as the scope of the study and limitation of the study.Second part
of the term paper discusses with the project description where there is some
information about the company, their structure, analysis of their business market.And
last part of the term paper discusses with the conclusion, findings and references of the
study.

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 Table of contents
Details Sub Topics Page
CHAPTER 1 Summary 6
CHAPTER 2 Hypothetical Data 7
CHAPTER 3 CVP Analysis 9
CHAPTER 4 Segmented Income Statement 16
CHAPTER 5 ABC Methods 20
CHAPTER 6 Comment 23
CHAPTER 7 Data Analysis 23

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 CHAPTER 1

Summary
Smart Technologies Ltd company based on multi-product and multi-divisional
manufacturing company, I have chosen the topic base on my interested area which is
titled as “CVP Analysis, Segmented Income Statement, Activity based Costing
Methods”. This report introduced multi-product and multi-divisional manufacturing
company. The company has Three product lines and operates its business through
Three divisional markets. We have taken hypothetical data, to show CM ratio, VC
ratio, Break-even point sales in units and amount with graphical representation,
margin of safety, degree of operating leverage and five possible ways to increase the
profitability level for each of the product line for a particular year and the segmented
income statement for each of the division for a particular year, customer margin for
a particular customer of a market for these Three products using Activity based
Costing (ABC), comment on the overall performance of the company considering
from these three aspects as per your understanding.

CHAPTER -2

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 Smart Technologies Ltd

Smart Technologies Ltd is a Company in Bangladesh that has 3 different products

1. Printers
2. Cartridge
3. Offline UPS
They operate the business in three divisional markets:

1.Dhaka dvition
2.Rajshahi
3.Sylhet.
1.2Objective of the study
This study emphasis in the following scope:
 To have a practical knowledge about the analysis
 To have a segmented income statement divisional wise
 To have a Customer Margin and Activity based Costing for Three different
markets on food products.
 To have the overall performance of the company in different regions.
1.3Methodology of the study
A descriptive research design with survey method is applied in the study. We have
used both the primary and the secondary data for the purpose of this study the data
source was mainly discussed below. Secondary data were collected from available
books, publications, research studies, articles and websites. In this report we used
several secondary sources like books, newspapers, journals, magazines.

1.4 Limitations of the study

 Limited access to data.
 Time constraints.

Smart Technologies Ltd

The year of 2020

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 Products List
Total Printers Cartridge Offline UPS

Sales
1600000 500000 700000 400000
Variable Expense 100000 150000 80000
330000
Contribution Margin 400000 550000 320000
1270000
Fixed Expense 50000 80000 30000
160000
Net Operating Income 350000 470000 290000
1110000
Product Wise Sales Units:
Sl.No Products Units
1 Printers 50
2 Cartridge 100
3 Offline UPS 70

Requirements :
1. Break Even Point sales in units = (Fixed Expenses/ CM per unit)
2. Break Even Point sales in dollar = (Fixed Expenses/ CM ratio)
3. Margin of Safety in Dollar = (Actual Sales - Break Even Point Sales)
4. CM Ratio = (CM per Unit/ Sales per Unit)
5. VC Ratio= (VE per unit/ Sales per Unit)
6. Graphical Representation
7. the degree of operating leverage
8. Five possible ways to increase the profitability

Chapter 03

Solutions (Printers)

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Here,
Per unit selling price 10000 tk
Per unit variable expense 2000 tk
CM per unit (10000-2000)= 8000 tk

CM Ratio = (8000/10000)*100
= 80%

VC Ratio = (2000/10000)*100
= 20%

Break Even Point

Sales in units = (50000/8000)
= 6.25 units Sales in amount = (50000/0.8)
= 62500 Tk

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 ( Break Even Point )

Margin of safety = ( 500000-62500 ) Tk

= 437500 Tk
Margin of safety in (%) = (437500/500000)*100
= 87.5%
Degree of operating leverage = (400000/350000)
= 1.14

5. possible ways to increase profitability of the company :

1. New branch to increase sales by 20000
2. Advertising cost 5000
3. Appoint a new executive salary fixed 20000 annually
4. Employe salary 20000 tk
5. Social welfare activities may be adopted which cost is 30000 tk and hopefully it will
bring 100000 on sales

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 Contribution Format Income Statement
(Justification )

Particulars Amount
Sales (500,000+100,000+60,000) 660000
Less: Variable Expenses (620000*26%) 161200
Contribution Margin 498800
Less: Fixed Expenses 125000
(50000+5000+20000+20000+30000)
Net Operating Income 373800

Net Operating Income will be increased by (373800-350000) = 23800 Tk

Solutions No 2 (Cartridge)

Here,
Per unit selling price 7000 tk
Per unit variable expense 1500 tk
CM per unit (7000-5500)= 5500 tk

CM Ratio = (5500/7000)*100
= 79%

VC Ratio = (1500/7000)*100
= 21%

Break Even Point

Sales in units = (80000/5500)
= 15 units
Sales in amount = (80000/0.79)
= 101266 Tk

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 Break Even Point

Margin of safety in Tk = ( 700000-101266 )

= 598734 Tk
Margin of safety in (%) = (598734/700000)*100
= 86%
Degree of operating leverage = (550000/470000)
= 1.17

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5 possible ways to increase profitability of the company :
1. Offer Sales 20000
2. TVC OBC will increase the actual sales at 10% and the cost is 20000 tk
3. Maximize the size of wire house that can be stored more products that will raises
the sales 5% of total
4. social media marketing will increase sales minimum 90000 tk at the cost of 10000
tk
5. Purchase delivery van for home delivery will be accrued cost 25000 tk

Contribution Format Income Statement

(Justification )

Particulars Amount
Sales (700000+20000+90000) 810000
Less: Variable Expenses (150000*20%) 30000
Contribution Margin 780000
Less: Fixed Expenses (80000+10000+20000+25000) 135000
Net Operating Income 645000

Net Operating Income will be increased by (645000-470000) = 175000 Tk

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Solutions No 3 (Offline UPS)

Here,
Per unit selling price =5714 tk
Per unit variable expense =1142 tk
CM per unit (5714-1142) = 4672 tk

CM Ratio = (4571/5714)*100
= 80%

VC Ratio = (1143/5714)*100
= 20%

Break Even Point

Sales in units = (30000/4571)

= 6.56
units Sales in amount = (30000/0.8)
= 37500 Tk

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 Break Even Point

Margin of safety in Tk = ( 400000-37500 )

= 362500 Tk

Margin of safety in (%) = (362500/400000)*100

= 91%

Degree of operating leverage = (320000/290000)

= 1.10

5 possible ways to increase profitability of the company :

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 1. Price can be increase by 20000
2. Delivery cost 8000
3. Sponsor in various events which will cost for 50000tk and also increase sales
75000
4. Increase distribution channels which will cost at 40000 tk
5. Direct sales campaign may be adopted which will increase minimum 150000 tk
of sales

Contribution Format Income Statement

(Justification )

Particulars Amount
Sales (400000+20000+75000+150000) 620000
Less: Variable Expenses (80000*30%) 24000
Contribution Margin 596000
Less: Fixed Expenses (30000+8000+40000) 78000
Net Operating Income 518000

Net Operating Income will be increased by (518000-290000) = 228000 Tk

Chapter 04

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 Smart Technologies Ltd
For the year of 2020

Total Dhaka Chittagong Khulna

Sales
1600000 40% 25% 35%
Variable Expense
330000 35% 30% 35%
Contribution Margin ? ? ?
?
Traceable Fixed Expense 190000 220000 178000
588000
Segment Margin ? ? ?
?

Required :
1. Show Overall Segmented Income statement
2. Show individual Income statement for each division

Solution No 01

Smart Technologies Ltd

For the year of 2020

Total Dhaka Chittagong Khulna

Sales
1600000 640000 400000 560000
Variable Expense
540000 224000 120000 196000
Contribution Margin 416000 280000 354000
1050000
Traceable Fixed Expense 190000 220000 178000
588000
Segment Margin 226000 60000 176000
462000

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Solution No 02

Smart Technologies Ltd

Segmented Income Statement (Dhaka Division )

For the year of 2020

Particulars Amount
Sales (1600000*40 % ) 640000
Less: Variable Expenses (640000*35%) 224000
Contribution Margin 416000
Less: Fixed Expenses 190000
Segment Margin 226000

Comments: Here, net income from Dhaka division is tk 226000. Which is in a

good position for the company.

Smart Technologies Ltd

Segmented Income Statement ( Chittagong Division )
For the year of 2020
Particulars Amount
Sales(1600000*25 % ) 400000
Less: Variable Expenses(400000*30 % ) 120000
Contribution Margin 280000
Less: Fixed Expenses 220000
Segment Margin 60000

Comments: Here, segment margin is tk 60000 though it is a small amount for the
company but it has also a contribution in the profit segment.

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 Segmented Income Statement
( Khulna Division )
For the year of 2018
Particulars Amount
Sales(1600000*35 % ) 560000
Less: Variable Expenses(560000*35 % ) 196000
Contribution Margin 354000
Less: Fixed Expenses 178000
Segment Margin 176000

Comments: Net Income tk 302000from Khulna division in the year 2018.

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 Chapter 05

Activity Cost Pools Activity Rates

Supporting Direct Labour 07
Order processing 20
Supporting Customers 800
Others N/A

Berger Paints Bangladesh Limited is the regular customer of Smart Technologies Ltd :

Products

Printers Cartridge Offline UPS

Unit Orders 150 170 130
Direct labour Hours 7 8 9
Selling Price (Per Unit) 10000 7000 5714
Direct Materials 40 50 35
Direct Labour 20 30 25

#Show the Customer margin for a particular customer of a market for these
Three products using ABC Method.

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 Solution:

Smart Technologies Ltd :

Overhead Costs attributable to Berger Paints Bangladesh Limited
Products

Printers Cartridge Offl ine UPS

Activity Cost Pool Activity – Activity- Ovh- Activity - Activity - Ovh. Activity – Activity – Ovh Activity – Activity
Rates Cost Rate Cost Rate Cost
Suppoting Direct labour 7 1050 7350 7 1360 9520 7 1170 8190
O rder Processing 20 1 20 20 1 20 20 1 20
Supporting Customers 15 0.2 3 15 0.2 3 15 0.2 3
Total 7373 9543 8213

Smart Technologies Ltd :

Calculation of Customer Margin (Printers) For Berger Paints Bangladesh
Limited

Particulars Amount Amount

Sales (10000*150) 1500000
Less: Direct Materials (40*150) 6000
Less: Direct Labour (20*150) 3000
Less: Overheads 7373
(16373)
…………..
Customer Margin 1483627

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 Smart Technologies Ltd :
Calculation of Customer Margin (Cartridge) For Berger Paints Bangladesh
Limited

Particulars Amount Amount

Sales (7000*170) 1190000
Less: Direct Materials (50*170) 8500
Less: Direct Labour (30*170) 5100
Less: Overheads 9543
(23143)
…………..
Customer Margin 1166857

Smart Technologies Ltd :

Calculation of Customer Margin (Cartridge) For Berger Paints Bangladesh
Limited

Particulars Amount Amount

Sales (5714*130) 742820
Less: Direct Materials (35*130) 4550
Less: Direct Labour (25*130) 3250
Less: Overheads 8213
(16013)
…………..
Customer Margin 726807

Chapter 06

A comment on the overall performance of the company considering

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from these three aspects:

Smart Technologies Ltd will see the amount of profit day by day and also after taking
individual plans to this company to gain more profit. The company with more new
branches can increase the amount of profit. Improving the food quality keeping good
communication and understanding with customers can maximize the amount of profit.
With proper amount of offers and advertising more amount of customer can be gained
in this company.

Chapter 07

DATA ANALYSIS
The main objective of this study to explore the application of management accounting
practices of Smart Technologies Ltd.
1. Taking hypothetical data, we have shown CM ratio, VC ratio, Break-even
point sales in units and amount with graphical representation, margin of safety,
degree of operating leverage and five possible ways to increase the
profitability level for each of the product line for a particular year.
2. Prepared the segmented income statement for each of the division for a
particular year.
3. Described the customer margin for a particular customer of a market for these
Three products using Activity based Costing (ABC).
4. Show the customer margin for a particular customer of a market for these three
products using Activity based Costing (ABC)

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