Management Accounting: Golden Bakeries LTD - CVP Analysis.

Essay by kkanrit3University, Master's December 2005

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I. Executive Summary

Golden Bakeries ltd. has three major product lines: bread rolls, donuts and fudge cakes.

Survey from the statement of financial performance as of June end 2004, material and finished goods are almost same for three kinds of products. It means the production and sales keep same in accounting period. Regarding to current sales categories,

The biggest marginal contribution ratio is from bread rolls, reached 50.3%. The weighted average marginal contribution ratio is 44.2%, Profit is 14% for overall company.

II Company C-V-P Analysis.

A method for understanding the relationship between revenue, cost and sales volume is cost-volume-profit analysis, or CVP. CVP is concerned with understanding the relationship between changes in activity (the number of units sold) and changes in selling prices and costs (both fixed and varilable).

A. Bread rolls

Bread rolls contribute 67% percentage in overall sales, product contribution margin is 50.3%. Contribution of the fixed cost is $1,006K, it means max.fixed

cost of amortization is $1,006K. The break-even point in sales units is 2,160K Kg, The amount excess 2,160K Kg is the margin of safety. Unit profit ratio reached 23.2%, is the highest ratio among three kinds of products. Bread rolls is the key product contributes 103% percentage in overall profit of the accounting period.

B. Donuts

The contribution percentage provided from the sales of Donuts is only 16.7% much less than Bread rolls. The contribution margin is 37% subter-Bread rolls of 13% more or less. Knowing that contribution of the fixed cost is $296K. The break-even point in sales units is 89K Kg, The amount excess 89K Kg is the safety margin. Unit profit ratio reached 4.3%, is the medium ratio among three kinds of products, but less 18.9% than bread rolls,the reason is variable cost ratio is 13.3% more higher than bread...