Case 5-1 (Micro-Image Technology, Inc.)

Posted: August 26th, 2021

Case 5-1 (Micro-Image Technology, Inc.)

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Case 5-1 (Micro-Image Technology, Inc.)

Question 1: (a) – Variable Costing

The variable costing method is a concept that captures the variable manufacturing and costs and overhead manufacturing, which are realized within the production period(Jiambalvo, 2016; Vanderbeck, 2008). When the operating costs for Micro-Image Technology, Inc. is recast, the report reveals that the company made a net operating profit of $ 70,000 for the year ending 2017. The sales unit amounted to 80,000 sold at $215 per unit price, yielding sales revenues amounting to $ 17, 200,000.

Question 2: (a) – Break-Even Sales

Break-even refers to a system that measures the safety margin (Christine, 2015). The system compares the units or revenues that the firm should makethe sale to cover the variable and fixed costs associated with makings sales(Cafferkey & Wentworth, 2014). The aim is to ascertain when the company will make profits. The following is the formula  used to calculate the break-even sales and units for the company based on the year 2018 assumptions;

Based on the financial data analysis, the sales price per unit was $ 215, while the variable cost per unit was $ 20 (See excel output). As a result, the break-even sales units for the firm are 76,154 units and sales revenue in dollars should be $ 16 373,076.92. The firm should attain these figures for the year 2018 for the company to meet its fixed and variable costs incurred in sales.

Question 3: (a) – Projections

The budgeted income statement reveals promising results for both 2018 and 2019 income estimates. For 2018, the firm is likely to attain a profit of $ 7, 510,000. The results are based on the condition that the research and development costs are reduced by $ 1,100,000, unit sales are increases by 30% and two additional sales managers recruited at $ 90,000 salary. Similarly, the 2019 projections are also promising since the company is expected to earn a net operating profit of $ 21,236,000. The conditions are that the firm recruits one extra sales manager at the cost of $ 90,000, the sales increase by 60% over 2018, and the research and development (R & D) costs reduce by $ 600,000. These developments are likely to attract investors to the firm as it promises to post an increasing trend in profitability.

References

Cafferky, M. & Wentworth, J. (2014). Breakeven analysis: the definitive guide to cost-volume-profit analysis. New York, New York (222 East 46th Street, New York, NY 10017: Business Expert Press.

Christine, D. (2015). Management Accounting Break-Even Point Approach. Saarbrücken: LAP LAMBERT Academic Publishing.

Jiambalvo, J. (2016). Managerial accounting (6^th Ed). Hoboken, NJ: John Wiley & Sons.

Vanderbeck, E. (2008). Principles of cost accounting. Mason, OH: Thomson/South-Western.