BBAC501 Management Accounting

Assignment Questions:

  1. Determine DIHL's budgeted net profit for the year 2018. (Hint: use contribution margin approach to income statement or variable costing statement).

  2. Assuming the sales mix remains constant though out 2018, determine how many pairs of shoes must be sold for each type in order to breakeven.

  3. Answer the following items for DIHL and interpret the results:
  4. Calculate the projected safety margin in units for the year 2018 and explain the importance of such information for DIHL.
    b. Compute the projected safety margin in sales dollars for the year 2018 and interpret what your answer means to DIHL.

Assignment Answer:

Eliana is a student currently completing her Bachelor of Science in Computational Finance at the City University of Hong Kong (CityU). In her final year, she is required to conduct a small research project in the field of accounting covering any area of her interest. After consulting with her lecturer, Eliana decided to focus on cost-volume-profit analysis and picked Daphne International Holdings Limited (DIHL) as her case company. DIHL is a Hong Kong-based investment holding company, who is also one of the largest shoe manufacturers in China. The Company operates through several segments, including the sales of footwear products under Daphne and Shoe Box and other brands; the manufacturing of fashion and accessory products; and the e-commerce businesses through its subsidiaries. The Company mainly operates its businesses in China, Asia, Europe and North America. For the purpose of her research, Eliana decided to focus on the shoe manufacturing branch by taking three sample products and denoted them as ‘Shoe-A’, ‘Shoe-B’ and ‘Shoe-C’.

Eliana obtained budgeted annual data for 2018 from the finance department of DIHL. Budgeted sales volume for the year includes 4,500 pairs of shoes each for Shoe-A and Shoe-B while that of Shoe-C is 6,000 pairs. Budgeted fixed costs for the year comprise of $189,500 for manufacturing and $80,000 for selling and administrative costs. The tax rate applicable for DIHL in Hong Kong is 30 per cent. Additional budgeted total annual data for the three products for the year 2018 is presented as follows.

Required: You are hired as a part-time research assistant to help Eliana address the following requirements (treat each requirement independently, show all computations and explain your results).

Determine DIHL's budgeted net profit for the year 2018. (Hint: use contribution margin approach to income statement or variable costing statement).

Sl No

Particular

Shoe-A

Shoe-B

Shoe-C

Total

1

Budgeted Sales Volume

540000

630000

1080000

2250000

2

Variable Manufacturing Cost

360000

405000

660000

1425000

3

Variable Selling Cost

112500

90000

210000

412500

4

Budget Sales Quantity

4500

4500

6000

15000

5

Contribution (1-2-3)

67500

135000

210000

412500

6

Fixed Cost


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