INDEPENDENT UNIVERSITY, BANGLADESH

Course Name: Management of Accounting

Course ID: ACN 202
Submitted to: Mr. Prahallad Chandra Das
Date of submission: 22nd July 2019
Submitted by:

Names ID
Mahbub Rashid Azad 1722303

Farah Ferdous Nova 1721981

Fahim Ahmed Moumi 1722019

Letter of Transmittal

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22nd July 2019

Mr. Prahallad Chandra Das

Lecturer,

Department of School of Business

Independent University, Bangladesh (IUB),

Subject: Submission on case study of Aussie Pies

Dear Sir,

We are pleased to submit the report that you asked for & gave us the authorization to work on
the case study of Aussie Pies. This report is a part of our course. We tried our best to work on it
carefully and sincerely to make the report informative.

The study we conducted enhanced our knowledge to make an executive report. This report has
given us an exceptional experience that might have immense uses in the future endeavors and we
sincerely hope that it would be able to fulfill our expectations.

We have put our sincere effort to give this report a presentable shape and make it as informative
and precise as possible. We want to thank you for providing us this unique opportunity.

Sincerely,

Team Tricycle

Acknowledgement

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Our respected faculty, Mr. Prahallad Chandra Das deserves our greatest gratitude for guiding us
throughout the report with numerous consultations. We are extremely thankful to our honourable
faculty who took the interest on our report and supported us till the end. We would also like to
thank many people who helped us, especially our team members themselves, have made valuable
comments and suggestions on this report which gave us an inspiration to improve our assignment
by a large margin. We thank all the people for their help directly and indirectly to complete our
assignment.

Thankyou.

Executive Summary
Back in 2005, Anna Amphlett and Andrew Ferris observed that Australians love meat pies and
from an Australian Football match and came up with the idea of launching the new meat pie

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business in Seattle, Washington. They registered the trade name, ‘Aussie Pie’ and decided to
introduce the concept of the Australian meat pie to American consumers.

At part 1, we figured out that the initial fixed cost is $30,000; variable cost per unit is $1.25;
monthly loss is $18,000 based on 6000 sales of units; BEP in dollars are $48,749 and units are
15,000 pies.

Assuming, after year 1, the establishment changes location and rental changes by $1000, fixed
salary increases by $2000, sales commission gets added by $.50/pie and supplies increase to
$200. Considering all these changes and other costs keeping the same, the new monthly fixed
manufacturing overhead cost (FMOH) is $25,400; total fixed selling and administrative cost is
$16,400; total variable per unit cost of production is $1.35; total per unit selling and
administrative cost is $0.52, BEP in units are 30,290 pies, margin of safety in units are -5290
pies (due to loss), margin of safety in percentage in 21.16%; net loss for selling 25,000 pies is
$7,300 (Variable costing approach) and $6353 (Absorption costing approach).

Here we tried to figure all desired costs based on different situations. Aussie pie is facing loss
according to our calculation.

1. Aussie Pie’s Fixed cost

Particulars Amount

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 Rent of store at Pike Market Place $ 11,900
Renting cooking equipment $ 8,000

Renting Fixtures $ 5,000

Two Full-Time chefs (2x1800) $ 3,600

One Full-Time Sales assistant $ 1,200

Utility Cost for lighting the store $ 300
Total $ 30,000

2. Aussie Pie’s Variable Cost

Particulars Amount
Ingredients $1.20

Utilities for making pies $0.03

Packaging of meat pies at point of sale $0.02

Total variable cost per unit $1.25

3. Aussie Pie’s Profit\Loss when they generate 6000 pies per month

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 Particulars Per Unit Total Percentage Ratio
Price

Sales $3.25 $19,500 100%

Less: Variable Cost $1.25 ($7,500) 38.46%

Contribution Margin $2.00 $12,000 61.54%

Less: Fixed Cost ($30,000)

Net Operating Income (LOSS) ($18,000)

4. Breakeven Point Units and Dollar:

Break-even point (Units) = Total Fixed Cost / Contribution Margin per unit

= $30,000/2

= 15,000 pies

Break-even point (dollar) = Total Fixed Cost / Contribution Margin Ratio

= $30,000/0.6154

= $48,749

Answer to question no. 5

PART A:

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 Particulars Amount
Rent of production house $11,900

Rent of cooking equipment $8,000

Rent of fixtures $5,000

Supplies for cleaning production house $200

Utilities for lighting production house $300

Total Fixed Manufacturing Overhead $25,400

PART B:

Particulars Amount
Rent of new selling store at Alki Beach, Seattle $1,000

Table and bench set ($1200 x 10) $12,000

Owners salary (2 x $1000) $2,000

Salary of Sales Assistant $1,200

Deprecation of Table and bench set per month $200

Total Fixed Selling and Administrative cost $16,400

PART C:

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 Particulars Amount

Ingredients $1.20

Utilities for making pies $0.03

Two chefs ($3600/30,000) $0.12

Total variable per unit cost of production $1.35

PART D:

Particulars Amount

Commission of sales personnel $0.50

Packaging of meat pies at point of sale $0.02

Total per unit selling and administrative cost $0.52

PART E:

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New Break-even point (unit) = Total Fixed Cost / Contribution Margin per unit

= ($16,400+$25400) / [$3.25 - ($1.35+$0.52)]

= $41,800 / $1.38

= 30,290 pies

PART F:

Margin of safety = Actual Unit – Break-even point (unit)

= 25000 – 30290

= (5290) pies

Margin of safety percentage = [(5290) / 25000] x 100

= 21.16%

So, a negative margin of safety of 5290 pies indicates a net loss of 21.16% as the actual unit (25000
pies) has fallen below break-even unit (30290 pies)

PART G:

Variable Costing Approach:

Product cost in January = Direct Material + Direct Labor + Variable Manufacturing Overheard

= $1.20 + ($3600/30,000) + $0.03

= $1.35

Product cost in February = Direct Material + Direct Labor +Variable Manufacturing Overhead

= 1.20 + ($3600/30,000) + $0.03

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 = $1.35

Absorption Costing Approach:

Product cost in January = Direct Material + Direct Labor + Variable Manufacturing Overheard
+ Fixed Manufacturing Overhead

= $1.20 + ($3600/30,000) + $0.03 + ($25400/24500)

= $1.20 + $0.12 + $0.03 + 1.036734694

= $2.386734694

Product cost in February = Direct Material + Direct Labor + Variable Manufacturing Overheard
+ Fixed Manufacturing Overhead

= $1.20 + ($3600/30,000) + $0.03 + ($25400/26000)

= $1.20 + $0.12 + $0.03 + $0.9769230769

= $2.326923077

Variable Costing approach:

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Income statement: February

Particulars Amount Amount

Sales ($3.25 x 25000) $81,250

Less: Variable Expenses:

Variable Cost of goods sold ($1.35 x 25000) ($33,750)

Variable Selling and Administrative expenses ($0.52 x 25000) ($13,000)

Contribution Margin $34,500

Less: Fixed Expenses:

Fixed Manufacturing Overhead ($25,400)

Fixed Selling and Administrative Expenses ($16,400)

Net operating income (Loss) ($7,300)

Absorption Costing approach:

Income Statement: February

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 Particulars Amount Amount

Sales ($3.25 x 25000) $81,250

Less: Cost of goods sold (500 x $2.386734694) ($58,203)

+ (24500 x $2.326923077)

Gross Profit $23,047

Less: Selling and Administrative expense:

Variable Selling and Administrative expense ($13,000)

Fixed Selling and Administrative expense ($16,400)

Net operating income (Loss) ($6,353)

PART H:

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Reconciliation of net operating income (Loss) under Variable costing and Absorption costing for the
month of February:

Particulars Amount

Variable Costing Net operating income ($7,300)

(loss)

Add FMOH deferred in inventory under (1500 x $1465.38

absorption costing $0.9769230769
)

Deduct FMOH released from inventory (500 x $ ($518.37)

under absorption costing 1.036734694)

Absorption Costing Net operating income (loss) ($6,353)

PART I:

When units produced exceeds units sold, Absorption Costing approach would show higher
operating income because fixed manufacturing overhead cost is deferred in inventory under
absorption costing as inventories increase.

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