I have submitted the answers of all, just need the executive summary of my finding and analysis.

Assignment questions

Harry Mowers Pty Ltd., manufactures grass collection attachments for Lawn Mowers that are sold in the market. The income statement for 2020 indicated an operating loss of $420,000 details of which are given below:

Harry Mowers Pty Ltd. Sales (30,000 attachments @$500 each)

15,000,000

Fixed Costs

5,670,000

Variable Costs

9,750,000

Operating income

(420,000)

Mr Marcus (cost accountant) and Mr Rohan, his assistant, have been asked by the owners of Harry Mowers to see if there are ways to reduce costs. After some thinking and some analysis, Rohan proposes to Marcus the following two options:

1. Option 1 - To reduce the variable costs by 70%, by procuring cheaper direct raw materials.

2. Option 2 - To reduce the company's variable costs by 60%, by reducing the costs it currently incurs for safe disposal of wasted plastic resulting from the manufacture of the grass collection attachments.

Marcus is concerned that this would expose Harry Mowers to potential environmental 3

liabilities. He requests Rohan to factor into his analysis an estimation of potential environmental liabilities. Rohan responds by saying: "We are not violating any laws. There is some possibility that we may have to incur environmental costs in the future, but if we bring it up now, this proposal will not go through because the owners will always assume that these costs could be larger than they turn out to be. We may be in danger of the company closing down and costing our jobs. The only reason our competitors are making money is because they are doing exactly what I am proposing."

REQUIRED:

1. Show calculations for break even revenues for 2020.

2. Show calculations to determine the break even revenues for 2020, if variable costs are at 70% and 60% of revenues as per options 1 and 2.

3. Show calculations to determine the operating income for 2020, if variable costs were at 70% and 60% of revenues as per options 1 and 2.

4. Evaluate Marcus' comments in line with the ethical standards as advanced by the Institute of Management Accountants.

5. How would the non-inclusion of environmental costs impact Harry Mowers in the future.

6. Write the executive summary :one page - an overview of the important issues and their background, and providing a summary of your findings.

Question

Harry Mowers Pty Ltd

Sales (30,000@$500)

15,000,000

Less VC(30,000@325)

-

9,750,000

Contribution Margin

5,250,000

35%

Less FC

-

5,670,000

Net income (loss)

-420,000

VC per unit(9,750,000/30,000)

=

325

1

Contribution Margin ratio=Contribution Margin/Sales

=

5,250,000/15,000,000

=

35%

Break Even Revenue

=

5,670,000/35%

16,200,000

Contribution Margin of units

=

5,250,000/30,000

=

175

Break even point ( in terms of units)

=

5,670,000/175

32,400

2

a)

VC at 70%

Sales (30,000@$500)

15,000,000

Less VC (30,000@ 325*70%)

-

6,825,000

Contribution Margin

8,175,000

55%

Less FC

-

5,670,000

Net income

2,505,000

Contribution Margin ratio=Contribution Margin/Sales

=

8,175,000/15,000,000

=

55%

Break Even Revenue

=

5,670,000/55%

=

10,403,670

Contribution Margin of units

=

8,175,000/30,000

=

272.5

Break even point ( in terms of units)

=

5,670,000/272.5

=

20,807

b)

VC at 60%

Sales (30,000@$500)

15,000,000

Less VC (30,000@ 325*60%)

-

5,850,000

Contribution Margin

9,150,000

61%

Less FC

-

5,670,000

Net income

3,480,000

Contribution Margin ratio=Contribution Margin/Sales

=

9,150,000/15,000,000

=

61%

Break Even Revenue

=

5,670,000/61%

=

9,295,082

Contribution Margin of units

=

9,150,000/30,000

=

305.0

Break even point ( in terms of units)

=

5,670,000/305

=

18,590

3

Option 1

VC at 70%

Sales (30,000@$500)

15,000,000

Less VC (30,000@ 325*70%)

-

6,825,000

Contribution Margin

8,175,000

Less FC

-

5,670,000

Net income

2,505,000

Option 2

VC at 60%

Sales (30,000@$500)

15,000,000

Less VC (30,000@ 325*60%)

-

5,850,000

Contribution Margin

9,150,000

Less FC

-

5,670,000

Net income

3,480,000

Answer-4

The Institute of Management Accountants have basically 4 ethical standards i.e

1. Competence
2. Confidentiality
3. Integrity
4. Credibility

The option 1 as suggested by Marcus is not against the ethical standard unless they acquire low quality goods getting cheaper goods from direct source is not a violation of standards unless it meets the required quality.

Option 2 though is against the ethical standard as it suggest environmental harm through ineffective disposal of waste. Ignoring environmental harm is against the organization integrity standards as it is the responsibility of organization to take care of the environmental factors while manufacturing as well as distributing their products.

Answer-5

Criminal cannot hide for long. Harming environment in any way is a serious crime and we cannot escape from the penalty we need to pay for that, as we have seen in past examples like:

In 2014, the Court of Appeal handed a 250,000 fine to Thames Water, following the illegal discharge of untreated sewage materials into a stream in the North Wessex Downs. A year later, United Utilities was fined 750,000 after a pumping failure resulted in a raw sewage spill into the protected Dutton Estuary in Cambria.

In 2016, Thames Water found itself in the dock again for illegally emitting sewage debris and sludge into the Grand Union Canal. It received a record 1m fine - a record which lasted little more than a year. In 2017, the same company was charged with emitting an estimated 1.4 billion liters of raw sewage into the river Thames and fined 20m.

There are many such cases, hence Harry Mowers Pty Ltd., may also become one of them if it avoids environmental costs today.

So its better to pay off today instead of paying off more with penalty in future.