# Management Accounting Case Assignment

Topics: Variable cost, Costs, Marginal cost Pages: 6 (1928 words) Published: March 15, 2011
Alternative:
One alternative Old Mule Farms can choose is doing nothing, and just remain what they did in the past. Right now Old Mule Farms tried to minimize their expense. They sold some of their land to generate funds to cover operating cost; they rented pasturage to feed their cows; they basically focused on feeding heavier cows in order to get heavier calves, and then can generate more revenue. They also provide dietary supplements and minerals to maintain calves’ health and productivity. Old Mule Farm provided enough nutrients to cows and calves in order to produce more healthy products; it can help to improve company reputation. Variety beef products are the final goods in this industry; and nowadays more and more people concern how healthy their food is; therefore the quality of calves is very important. If we provide healthy calves, it can improve our company brand name; in the meanwhile it can attract more consumers. Also, they focus on producing heavier cows to produce heavier calves, and then can generate more money in a fast way. Moreover, the calves price is increasing during 2009-2010, and the average calves prices received by farmers in 2010 is 127.75 (\$/cwt)1. Assume other conditions remain unchanged, after doing the breakeven analysis, we can find the breakeven point is 42 (appendix 1c); or if all conditions are same, they will have \$2325 profit. Breakeven point is the point at which revenues equal total costs and profit is zero. By doing this analysis, we can know how many calves we need to sell in this year in order to be profitable or at least not in a business loss position. According to Ex.1, and Appendix 1(a), we know that in 2008, Old Mule Farms breakeven point is 74 which mean they should at least sell 74 calves to balance their revenue and cost. Right now they only have 50 cows so only can produce 50 calves; they need 24 more cows to be profitable. Under current conditions, they can’t support any more cows. 1

http://www.nass.usda.gov/Statistics_by_State/Montana/Publications/economic/prices/calfpr.htm, Last updated December 30, 2010, calculation: (115+120+124+131+128+126+126+138+129+130+131+135)/12=127.75 (\$/cwt)

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Calves price increase today and if they continue operating the business, they will earn profit, but under the unstable economic environment, nobody can foresee what the calves’ price will change in future, and the price of forage is volatile as well; there are many factors will affect the input (e.g. forage) price such as bad weather condition. They may face a big loss under specify circumstance. Moreover, they don’t have scientific evident to support their theory about heavier cows producing heavier calves. From Ex. 4, we can see the groups which average cow weight from 1100 to 1300 can produce the heaviest calves in Old Mule Farm in 2008. Except doing nothing, Old Mule Farm can group their cows base on their weight in order to better allocate their expense. They can feed their cows what they really need, and save some variable cost. According to Ex 2, we know supplements and minerals cost and dry matter cost are the biggest portion expense per cow per year. Therefore, if we can save as much as we can in these areas, we may be able to reduce total cost. Here we should do the cost estimation to predict supplements, minerals and dry matter costs. There are three estimation methods which are the high-low method, work measurement, and regression analysis. High-low method is the easiest and least costly way, and the regression analysis method is most accurate but the most costly way; we need to spend more time in calculating it. Right now Old Mule Farm keeps losing money; we don’t have enough time and liquid fund to do the regression analysis, so I just did the high-low method. I used it to do the cost estimate to see what relationship between cost of dry matter and cow size and cost of forage and cow size (Ex. 5 & Ex 6.) From Appendix 2(a) and Appendix 2(b), we can see the...