Writing Assignment for Managerial Accounting Introduction: Having the ability to effectively communicate is one of the most important skills a business executive can possess. As French businesswoman and author Mirelle Guilliano has said, Intelligence, knowledge or experience are important and might get you a job, but strong communication skills are what will get you promoted. My own business experience supports this statement. By the time individuals have a few years of experience, they have great technical skills and can assemble, analyze, and categorize data to make solid business decisions. In the end, however, they are often unable to communicate the results of their analysis effectively. When I speak to senior executives and inquire about educational needs, the conversation invariably turns to communications. In accounting, by necessity, we focus on accounting issues, but it is important to remember that as accountants we must be able to present the results of our analysis or studies to management. Through effective communications, accountants can truly impact business decisions and make their careers soar. The best way to get better at anything is to practice. Thats the basis for this assignment to practice written communication.

Situation for Analysis: Grayslake Novelty produces and sells a small novelty item sold through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units. The income statement for Grayslake Novelty for last year is shown below:

Sales $992,000

Less: Variable Expenses 545,600

Contribution Margin 446,400

Less: Fixed Costs 180,000

Net Operating Income $266,400

While the company has been profitable, as shown in the above income statement, sales began falling near the end of last year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making some decisions. These alternatives should be evaluated individually as stated. You are free to offer your own alternative based on any of the parameters given in the data.

Required:

a. While the company is currently profitable, the president wants to know the breakeven in both units and dollars using last years level of sales. Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last years sales.

b. One of the possible strategies (Alt 1) is to reduce the current price by 8%. What is the new break-even in units and dollars based on the price reduction?

c. A second strategy (Alt 2) is to reduce the current variable cost by 0.20 per unit. The company has identified available efficiencies that can be implemented without any changes to the current cost. What is the new break-even in units and dollars based on the variable cost reduction of 0.20 per unit?

d. A third strategy (Alt3) is to decrease the current price by 8% and reduce the variable cost per unit by 0.20. What is the new break-even in units and dollars based on making both changes?

e. A final strategy (Alt 4) under consideration is to invest in more automated equipment for the manufacturing process. This investment will reduce variable costs by 0.65 per unit, primarily reducing the direct labor. At the same time, this will increase the fixed costs by $50,000. What is the break-even in units and dollars based on this change in operating structure?