Term Paper on

CVP Analysis, Segmented Income Statement and ABC Methods

COURSE TITLE: Management Accounting

Course Code: ACC 3503

Prepared by: Submitted to:

Khan Tahsin Al Ramim SM Khaled Hossain

ID: B6190B0017
Assistant Professor
Kawser Mahmood Army IBA
ID: B6190B0016

Rasadul Islam Mozumder Tanzil

ID: B6190B007

Date of Submission: 10th May,2021

 LETTER OF TRANSMITTAL

10th May,2021
SM Khaled Hossain
Assistant Professor,
Army Institute of Business Administration,
Savar Cantonment, Dhaka.

Subject: Submission of a Report on CVP Analysis, Segmented Income Statement, ABC Methods

Dear Sir,
Here is our report on “CVP Analysis, Segmented Income Statement, ABC Methods ” that you have
assigned me to submit as a partial requirement for the course –“Management Accounting”;
Course Code- ACC 3503. While preparing this report, I have taken help from internet, books,
class lectures and relevant sources.
Though I have tried best yet it may contain some unintentional errors. I hope, this report will
come up with your expectation.
I shall be glad to answer any kind of question related to this report and I shall be glad to provide
further clarification if needed.

Yours faithfully
Khan Tahsin Al Ramim
ID: B6190B0017

Kawser Mahmood
ID: B6190B0016

Rasadul Islam Mozumder Tanzil

ID: B6190B007
 ACKNOWLEDGEMENT

I sincerely acknowledge my debt to my course advisor SM Khaled Hossain, Assistant

professor, Army Institute of Business Administration for his valuable counseling towards the
improvement of the report. Without his encouragement, this would have never been possible.

I am overwhelmed with gratitude to my course advisor as he helped me in terms of propulsion

and completing this term paper impeccably. The report is prepared only to meet academic
purpose not for any other reason.

Khan Tahsin Al Ramim

ID: B6190B0017

Kawser Mahmood
ID: B6190B0016

Rasadul Islam Mozumder Tanzil

ID: B6190B007
 Declaration
We hereby declare that the work presented in this internship report titled “CVP Analysis,
Segmented Income Statement, Activity based Costing Methods ” is an original work done by me
under the guideline of S.M. Khaled Hossain, PhD fellow, Assistant Professor, Army Institute of
Business Administration, Savar

No part of this report has been previously submitted to any other university / organization for any
academic certificate.
The work I have presented doesn’t violate any existing copyright and no portion of this report is
copied from any work done by anyone.

The content of the report or information collection from secondary sources. If any
misinformation appears in this report, the Bank has no more liable for this.

Sincerely,

Khan Tahsin Al Ramim

ID: B6190B0017

Kawser Mahmood
ID: B6190B0016

Rasadul Islam Mozumder Tanzil

ID: B6190B007
 ABSTRACT
This report represents the “CVP Analysis,Segmented Income Statement,ABC Methods”. The
first part discusses with the introduction and objectives of the study. As well as the scope of the
study and limitation of the study.

Second part of the term paper discusses with the project description where there is some
information about the company, their structure, analysis of their business market.

And last part of the term paper discusses with the conclusion, findings and references of the
study.
 Table of contents
Details Sub Topics Page

LETTER OF TRANSMITTAL 2
ACKNOWLEDGEMENT 3
ABSTRACT
4

CHAPTER 1:
Executive Summary 6

CHAPTER 2 Hypothetical Data 7-8

CHAPTER 3 CVP Analysis 9-19

CHAPTER 4 Segmented Income Statement 20-24

CHAPTER 5 ABC Methods 25-29

CHAPTER 6 Comment 29

CHAPTER 7 Data Analysis 30

 Chapter 01
Executive Summary

SA Furniture a hypothetical company based on multi-product and multi-divisional

manufacturing company, I have chosen the topic base on my interested area which is titled as
“CVP Analysis, Segmented Income Statement, Activity based Costing Methods”. This
report introduced multi-product and multi-divisional manufacturing company. The company has
five product lines and operates its business through five divisional markets. We have taken
hypothetical data, to show CM ratio, VC ratio, Break-even point sales in units and amount with
graphical representation, margin of safety, degree of operating leverage and five possible ways to
increase the profitability level for each of the product line for a particular year and the segmented
income statement for each of the division for a particular year, customer margin for a particular
customer of a market for these five products using Activity based Costing (ABC), comment on
the overall performance of the company considering from these three aspects as per your
understanding.
 Chapter 02

SA Furniture
SA Furniture is a Company in Bd which has 5 different products :
1. Bed
2. Sofa
3. Chair
4. Table
5. Throne
They operate the business in 5 different areas :
1. Dhaka
2. Chittagong
3. Khulna
4. Sylhet
5. Comilla

1.2 Objective of the study

This study emphasis in the following scope:
 To have a practical knowledge about the analysis
 To have a segmented income statement divisional wise
 To have a Customer Margin and Activity based Costing for five different markets on food
products.
 To have the overall performance of the company in different regions.
1.3 Methodology of the study
A descriptive research design with survey method is applied in the study. We have used both the
primary and the secondary data for the purpose of this study the data source was mainly
discussed below. Secondary data were collected from available books, publications, research
studies, articles and websites. In this report we used several secondary sources like books,
newspapers, journals, magazines.

1.4 Limitations of the study

 For COVID-19 situation we cannot carry out our research in primary data so we are
conducting this report in dependency on secondary data.
 Time bound
 SA Furniture
The year of 2018

Products
Bed Sofa Chair Table Throne
Total

Sales 500000 - 700000 - 400000 - 800000 - 600000 -

3000000
Variable Expense 100000 - 150000 - 80000 - 200000 - 120000 -
650000
Contribution Margin 400000 - 550000 - 320000 - 600000 - 480000 -
2350000
Fixed Expense 50000 - 80000 - 30000 - 80000 - 100000 -
340000
Net Operating Income 350000 - 470000 - 290000 - 520000 - 380000 -
2010000

Product Wise Sales Units

Products
Bed Sofa Chair Table Throne
50 units 100 units 70 units 200 units 170 units

Requirements :
1. Show the CM Ratio

2. Show the vc ratio

3. Show the Break Even point (i) Sales in Units

(ii) Sales in Amount
Show the graphical representation
6.Show the Margin of safety
7. Show the degree of operating leverage

8. Show Five possible ways to increase the profitability

 Chapter 03

Solutions ( Bed )
1.
Here,
Per unit selling price 10000 tk
Per unit variable expense 2000 tk
CM per unit (10000-2000)= 8000 tk

CM Ratio = (8000/10000)*100
= 80%

VC Ratio = (2000/10000)*100
= 20%

Break Even Point

Sales in units = (50000/8000)
= 6.25 units
Sales in amount = (50000/0.8)
= 62500 Tk
 ( Break Even Point )

Margin of safety = ( 500000-62500 ) Tk

= 437500 Tk
Margin of safety in (%) = (437500/500000)*100
= 87.5%

Degree of operating leverage = (400000/350000)

= 1.14

5. possible ways to increase profitability of the company :

1. New branch to increase sales by 20000

2. Advertising cost 5000

3. Appoint a new executive salary fixed 20000

annually 4.Employe salary 20000 tk

5.Social welfare activities may be adopted which cost is 30000 tk and hopefully it will bring 100000 on
sales.
 Contribution Format Income Statement
(Justification )
Particulars Amount
Sales (500,000+100,000+60,000) 660000
Less: Variable Expenses (620000*26%) 161200
Contribution Margin 498800
Less: Fixed Expenses (50000+5000+20000+20000+30000) 125000
Net Operating Income 373800

Net Operating Income will be increased by (373800-350000) = 23800 Tk

Solutions No 2 ( Sofa)

CM Ratio = (5500/7000)*100
= 79%

VC Ratio = (1500/7000)*100
= 21%

Break Even Point

Sales in units = (80000/5500)
= 15 units
Sales in amount = (80000/0.79)
= 101266 Tk
Break Even Point

Margin of safety in Tk = ( 700000-101266 )

= 598734 Tk
Margin of safety in (%) = (598734/700000)*100
= 86%
Degree of operating leverage = (550000/470000)
= 1.17
5 possible ways to increase profitability of the company :

1.Offer Sales 20000

2.TVC OBC will increase the actual sales at 10% and the cost is 20000 tk
3.Maximize the size of wire house that can be stored more products that will raises the sales 5%
of total
4.social media marketing will increase sales minimum 90000 tk at the cost of 10000
tk 5.Purchase delivery van for home delivery will be accrued cost 25000 tk

Contribution Format Income Statement

(Justification )
Particulars Amount
Sales (700000+20000+90000) 810000
Less: Variable Expenses (150000*20%) 30000
Contribution Margin 780000
Less: Fixed Expenses (80000+10000+20000+25000) 135000
Net Operating Income 645000

Net Operating Income will be increased by (645000-470000) = 175000 Tk

Solutions No 3 (Chair)

CM Ratio = (4571/5714)*100
= 80%

VC Ratio = (1143/5714)*100
= 20%

Break Even Point

Sales in units = (30000/4571)
= 6.56 units
Sales in amount = (30000/0.8)
= 37500 Tk
 Break Even Point

Margin of safety in Tk = ( 400000-37500 )

= 362500 Tk
Margin of safety in (%) = (362500/400000)*100
= 91%
Degree of operating leverage = (320000/290000)
= 1.10
5 possible ways to increase profitability of the company :
1.Price can be increase by 20000
2.Delivery cost 8000
3. Sponsor in various events which will cost for 50000tk and also increase sales 75000

4. Increase distribution channels which will cost at 40000 tk

5. Direct sales campaign may be adopted which will increase minimum 150000 tk of sales
 Contribution Format Income Statement
(Justification )
Particulars Amount
Sales (400000+20000+75000+150000) 620000
Less: Variable Expenses (80000*30%) 24000
Contribution Margin 596000
Less: Fixed Expenses (30000+8000+40000) 78000
Net Operating Income 518000

Net Operating Income will be increased by (518000-290000) = 228000 Tk

Solutions No 4 (Table)

CM Ratio = (3000/4000)*100
= 75%

VC Ratio = (1000/4000)*100
= 25%

Break Even Point

Sales in units = (80000/3000)
= 27 units
Sales in amount = (80000/0.75)
= 106667 Tk
 Break Even Point

Margin of safety in Tk = ( 800000-106667 )

= 6933333 Tk
Margin of safety in (%) = (693333/800000)*100
= 87%
Degree of operating leverage = (600000/520000)
= 1.15
5 possible ways to increase profitability of the company :
1. Price raise per unit 25 tk

2. promotional campaign will increase 5% sales and at cost 25000

3. Assume that social media marketing increase in sales 10% at 10000 tk cost

4. Promote buy 1 get 1 offer and that will raise additional 10000 tk

5. Hire brand ambassador by 300000 tk and he is capable to increase sales 25%

 Contribution Format Income Statement
(Justification )
Particulars Amount
Sales (800000+105000+805000+221375) 1206875
Less: Variable Expenses (200000*25%) 50000
Contribution Margin 1156875
Less: Fixed Expenses (80000+25000+10000) 115000
Net Operating Income 1041875

Net Operating Income will be increased by (1041875-520000) = 521875 Tk

Solutions No 5 (Throne)

CM Ratio = (2823-167/3529)*100
= 80%
VC Ratio = (706/3529)*100
= 20%
Break Even Point
Sales in units = (100000/2823)
= 35.42units
Sales in amount = (100000/0.8)
= 125000 Tk
 Break Even Point

Margin of safety in Tk = ( 600000-125000 )

= 475000 Tk
Margin of safety in (%) = (475000/600000)*100
= 79%
Degree of operating leverage = (480000/380000)
= 1.26
5 possible ways to increase profitability of the company :
1. Increase sale 250000

2. Increase the salaries of employees total 120000

tk 3.Increase the sales commission in total 70000 tk

4. Increase distribution channels which will cost at 40000 tk

5. Social media marketing may help to increase more sales by 5% and at the cost of 45000 tk
 Contribution Format Income Statement
(Justification )
Particulars Amount
Sales (600000+40000+250000) 890000
Less: Variable Expenses (120000*30%) 36000
Contribution Margin 854000
Less: Fixed Expenses (100000+120000+100000+70000+15000)
Net Operating Income 405000
449000

Net Operating Income will be increased by (449000-380000) = 69000 Tk

 Chapter 04

SA Furniture
For the year of 2018
……………………………………………………

Divisions
Company Dhaka Chittagong Khulna Sylhet
Comilla
Total

Sales 3000000 25% 10% 20% 10%

35%
Variable Expense 45% 20% 15% 20% 15%
30%
Contribution Margin ? ? ? ? ?
?
Traceable Fixed Expense 1088000 190000 220000 178000 300000
200000
Segment Margin ? ? ? ? ?
?

Required :
1. Show Overall Segmented Income statement
2. Show individual Income statement for each division
Solution No 01

SA Furniture
Segmented Income Statement
For the year of 2018
.……………………………………………………
Divisions
Company Dhaka Chittagong Khulna Sylhet
Comilla
Total

Sales 750000 300000 600000 300000 1050000

3000000
(-)Variable Expense 150000 45000 120000 45000 315000
675000
Contribution Margin 600000 255000 480000 255000 735000
2325000
Traceable Fixed Expense 190000 220000 178000 300000 200000
1088000
Segment Margin 410000 35000 302000 (45000) 535000
1237000
(-)Common Fixed Exp.
700000
Net Operating Income
537000
Solution No 02

SA Furniture
Segmented Income
Statement ( Dhaka Division )
For the year of 2018
Particulars Amount
Sales (3000000*25 % ) 750000
Less: Variable Expenses (750000*20%) 150000
Contribution Margin 600000
Less: Fixed Expenses 190000
Segment Margin 410000

Comments: Here, net income from Dhaka division is tk 410000. Which is in a good
position for the company.
 SA Furniture
Segmented Income Statement
( Chittagong Division )
For the year of 2018
Particulars Amount
Sales(3000000*10 % ) 300000
Less: Variable Expenses(300000*15 % ) 45000
Contribution Margin 255000
Less: Fixed Expenses 220000
Segment Margin 35000

Comments: Here, segment margin is tk 35000 though it is a small amount for the company but
it has also a contribution in the profit segment.

SA Furniture
Segmented Income Statement
( Khulna Division )
For the year of 2018
Particulars Amount
Sales (3000000*20 % ) 600000
Less: Variable Expenses (600000*20%) 120000
Contribution Margin 480000
Less: Fixed Expenses 178000
Segmented Margin 302000

Comments: Net Income tk 302000from Khulna division in the year 2018.

 SA Furniture
Segmented Income Statement
( Sylhet Division )
For the year of 2018
Particulars Amount
Sales (3000000*10 % ) 300000
Less: Variable Expenses (3000000*15%) 45000
Contribution Margin 255000
Less: Fixed Expenses (350000+100000) 300000
Net Operating Income (45000)

Comments: Here the company face loss tk 45000 from this division. So, they should take or
change the strategy of this division for better performance.

SA Furniture
Segmented Income Statement
( Comilla Division )
For the year of 2018
Particulars Amount
Sales (3000000*35 % ) 1050000
Less: Variable Expenses (1050000*30%) 315000
Contribution Margin 735000
Less: Fixed Expenses (200000+50000) 200000
Segmented Margin 535000

Comments: In this division the segment margin is higher from the other 4 divisions and it is
about tk 535000.
 Chapter 05

Activity Cost Pools Activity Rates

Supporting Direct Labour 07
Order processing 20
Supporting Customers 800
Others N/A

Ohi Furniture is the regular customer of SA Furniture :

Products
BED SOFA CHAIR TABLE
THRONE
Unit Orders 150 170 130 140 200
Direct labour Hours 7 8 9 6 5
Selling Price (Per Unit) 10000 7000 5714 4000 3529
Direct Materials 40 50 35 30
45
Direct Labour 20 30 25 35
25

#Show the Customer margin for a particular customer of a market for these five products
using ABC Method.
 Solution

SA Furniture
Overhead Costs attributable to Ohi Furniture

THRONE
Products
BED SOFA CHAIR TABLE
Activity Cost Pool Activity – Activity- Ovh- Activity - Activity - Ovh. Activity – Activity – Ovh Activity – Activity – Ovh - Activit

Rate Cost Rate Cost Rate Cost Rate cost rate cost
07 1050 7350 07 1360 9520 07 1170 8190 07 840 5880 07 1000

20 01 20 20 01 20 20 01 20 20 01 20 20 01

15 .2 03 15 .2 03 15 .2 03 15 .2 03 15 .2

7373 9543 8213 5903

 SA Furniture
Calculation of Customer Margin (BED) For OHI Furniture

Particulars Amount Amount

Sales (10000*150) 1500000

Less: Direct Materials (40*150) 6000
Less: Direct Labour (20*150) 3000
Less: Overheads 7373
(16373)
…………..
Customer Margin 1483627

SA Furniture
Calculation of Customer Margin (SOFA) For OHI Furniture

Particulars Amount Amount

Sales (7000*170) 1190000
Less: Direct Materials (50*170) 8500
Less: Direct Labour (30*170) 5100
Less: Overheads 9543
(23143)
…………..
Customer Margin 1166857
 SA Furniture
Calculation of Customer Margin (Chair) For OHI Furniture

Particulars Amount Amount

Sales (5714*130) 742820
Less: Direct Materials (35*130) 4550
Less: Direct Labour (25*130) 3250
Less: Overheads 8213
(16013)
…………..
Customer Margin 726807

SA Furniture
Calculation of Customer Margin (Table) For OHI Furniture

Particulars Amount Amount

Sales (4000*140) 560000
Less: Direct Materials (30*140) 4550
Less: Direct Labour (35*140) 3250
Less: Overheads 8213
(16013)
…………..
Customer Margin 726807

SA Furniture
Calculation of Customer Margin (THRONE) For OHI Furniture

Particulars Amount Amount

Sales (3529*200) 705800
Less: Direct Materials (45*200) 9000
Less: Direct Labour (25*200) 5000
Less: Overheads 7023
(21023)
…………..
Customer Margin 684777
 Chapter 06

A comment on the overall performance of the company considering from these three
aspects
SA Furniture will see the amount of profit day by day and also after taking individual plans to
this company to gain more profit. The company with more new branches can increase the
amount of profit. Improving the food quality keeping good communication and understanding
with customers can maximize the amount of profit. With proper amount of offers and advertising
more amount of customer can be gained in this company.

Chapter 07
DATA ANALYSIS

The main objective of this study to explore the application of management accounting practices
of SA Furniture.
1. Taking hypothetical data, we have shown CM ratio, VC ratio, Break-even point sales in
units and amount with graphical representation, margin of safety, degree of operating
leverage and five possible ways to increase the profitability level for each of the product
line for a particular year.
2. Prepared the segmented income statement for each of the division for a particular year.
3. Described the customer margin for a particular customer of a market for these five
products using Activity based Costing (ABC).
4. Show the customer margin for a particular customer of a market for these five products
using Activity based Costing (ABC).