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Accounting 2 Student Learning Outcomes
In this discussion board assignment, we focus on two student learning outcomes for our class:
- Prepare and analyze a contribution margin income statement and explain related items.
- Prepare analysis related to management decisions involving capital expenditures and apply and evaluate various methods used in making these decisions.
The Facts
During the last two years, a small manufacturing business has suffered erratic sales due to the ongoing COVID pandemic and supply chain issues. As a result, the business is facing financial difficulties. The contribution format income statement for the month ended November 30, 2021 is:
| Sales (19,500 units x $30 per unit) | $585,000 |
|---|---|
| Variable Expenses | 409,500 |
| Contribution Margin | $175,500 |
| Fixed Expenses | 180,000 |
| Net Operating Loss | $(4,500) |
The Issue
The CEO of the business learned automating the manufacturing process could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $72,000 each month. The CEO ask you, as a managerial accountant, if you would recommend that the company automate its operations.
The Assignment
In order to respond to the CEO’s question, compute:
- The current contribution margin ratio and break-even point based on the November 2021 contribution margin format income statement.
- The new contribution margin ratio and break -even point if the company automates its manufacturing process.
- Make a recommendation regarding automating the manufacturing process to the CEO. Support your recommendation with at least 2 data points from your analysis.
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