1/ Ahmeds Analysis

Ahmed worked with the following Contribution Margin Income Statement to conduct her analysis:

Contribution Margin Income Statement
Sales revenues (300,000 units)	$78,000,000
Less: Variable Costs
Variable cost of goods sold	35,100,000
Variable selling and administrative expenses	23,400,000
Contribution Margin	$19,500,000
Less: Fixed Costs
Manufacturing	9,560,000
Selling and administrative	2,783,000
Net Income	$7,157,000

2/ Ahmeds Rough Notes

Ahmed also worked with the following rough notes regarding three new proposals being considered:

• Invest in automation in three areas of sales and marketing: (1) order entry, (2) sales administration, (3) sales distribution. As a result of this proposal, the contribution margin ratio is expected to increase by 8% and annual fixed costs are expected to increase by $9,570,500.
• Invest in automation in three areas of the organization: (1) sales administration, (2) human resources and corporate office, and (3) manufacturing operations. This move is expected to increase the contribution margin ration by 11% and simultaneously increase annul fixed costs by $11,280,000. The total cost savings will be divided equally between the manufacturing and non-manufacturing functions.
• Invest in an Activity-Based Costing system and a new performance management system, which will increase the annual fixed costs by $1,800,000. This move will eliminate the need for a total of 33 accounting and administrative clerical staff at an average cost of $32,000 per year per person, and streamline operations.

Required:

Assume the role of Susan Ahmed, and do the following for Raj Mehta:

1. Recreate the preceding contribution margin income statement with additional columns for per-unit amounts and cost percentages (except for fixed costs) (2 points)
2. Compute the break-even point for the year. (2 points)
3. Prepare 3 new contribution margin income statements to reflect the three proposals (assuming there is no effect on sales). Ensure that your statements contain columns for per-unit amounts and percentages. (6 points)
4. Draft a short memo (no more than one page) to Raj describing how the three proposals will affect the break-even sales for the company. (5 points)

PART 2: BUDGET-ACTUAL VARIANCE

BACKGROUND

Earlier this year, as the newly appointed HR Director of Success4all Company, you submitted you annual budget to the Controller. The year has now concluded, and the Controller would like you to analyze your departments actual spending, compared to your budget.

Required:

Work with the original budget submission you made to the Controller, and perform the following:

1. Create your own actual numbers for the year 2021 (2 points)
2. Calculate your variances from budget in dollars, in percentage, and indicate each variance as either Favourable or Unfavourable, creating at least 3 significant variances (great than a 10% variance from budget) (4 points)
3. Give an explanation for each material variance, using the three step approach discussed in class (4 points)