The Nigerian Accountant 2012 October/December Edition

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TechnicalTable 8:Sensitivity Data ExtractPRODUCT % MOS Proportional CMR Product Price (N)A (Big Loaf – Ord) 82.58% 19.86% 140B (Big Loaf – SF) 59.03% 19.2% 140C (Big Loaf – Fty) 63.73% 18.25% 160D (Med Loaf – Hn) 46.94% 20.28% 160E (Small Loaf) 64.14% 14.68% 60F (Round Balls) 34.5% 7.73% 30Source: Extracted from Tables 1, 2, 3, and 4products break-even point.Looking at the statistical test of significance of the breakevenpoints computed using the model, it will seem obvious that aperfect solution to the joint products breakeven analysis has beenfound. With a perfectly negative correlation co-efficient of -1, itis evident that the computed break-even point relate perfectlyto the individual products BEP using the joint BEP figure as abase. From a test of multi-variable regression analysis usingthe computed individual product’s breakeven to sales ratio asthe dependent variable and the CMR and the RCMR as theindependent variables, it is evident from the coefficient of multipledetermination (R 2 ) of 0.99996045 and the significantly high Fratio that the CMR and the RCMR are two sides of the same coin(Hillier & Lieberman, 2007). That being the case, there is no gainsaying the fact that RCMR is the true key to the determination ofindividual product’s breakeven point in a multi-product breakevenanalysis scenario. To buttress this further, we shall discuss thesensitivity analysis by taking a look at Table 8 below:From Table 8, it is visible that product A has the highest marginof safety. This means that from the weekly budget point of view,it has wider latitude to make more sales and consequently morecontributions after attaining its low breakeven point. Though, themargin of safety is a good sensitivity tool, it is, however, only usefulwhen there is a budget foisted on wide and elaborate capacityutilisation. The proportional CMR is more forth coming with bettercontrol information than the margin of safety. For instance, whileproduct A has the highest margin of safety, product D on theother hand has the highest proportional CMR; meaning that itcontributes more to the overall profit than any other product in thesales mix. In the same vein, product C has a higher unit price thanproduct A but product A has a higher proportional CMR; meaningthat selling more of product A than C will lead to higher profits butwith lower overall sales total. Conversely, selling more of productC than A will lead to higher turnover but with lower profits. Thisuseful sensitivity information is the true essence of this wholemulti-products breakeven analysis exercise.CONCLUSION/RECOMMENDATIONHaving perused through many analytical considerations ofthe break-even concept, it is pertinent that a modern and morescientific approach be adopted in unknotting thorny issuesfound in simple theories that apparently appear to be previouslyunsolvable. The Reversed Contribution Margin Ratio (RCMR)approach introduced and adopted in this paper is a milestone inresolving one of such logjam in break-even analysis. With thismethod, the assumption of “only one single products line” nolonger holds and should therefore, be expunged from the breakevenanalysis assumptions.REFERENCES1. “Contribution Margin and Basics of CVP Analysis…”,(n.d), Retrieved February 18, 2012 from http://www.accountingformanagement.com/cost_volume_profit_analysis.htm.2. “Disadvantages and Advantages of BreakevenAnalysis”, (n.d), Retrieved February 18, 2012 from http://mathsolver.hubpages.com/hub/Breakeven-analysis.3. Drury, C. (2003), MANAGEMENT AND COSTACCOUNTING, London: Thomson Learning Books.4. Gutierrez, P.H. and N.L. Dalsted (2008), “Break-EvenMethod of Investment Analysis”, Retrieved February 17, 2012from http://www.ext.colostate.edu/pubs/farmmgt/03759.html.5. Horngren, C.T. (2007), COST ACCOUNTING – AManagerial Emphasis, 17 th Edition Englewood Cliffs: PrenticeHall International.6. Hillier, F.S. and G.J. Lieberman (2007), INTRODUCTIONTO OPERATIONS RESEARCH, 7 th Edition, New Delhi: TataMcGraw-Hill.7. Lucey, T. (1999), MANAGEMENT ACCOUNTING, (3 RDedn), London: ELST.8. Moore, T. (1998), THE ANATOMY OF DECISIONS,Florida, USA: Brace College Publishers.9. Morse, D.C. and Zimmerman, J.L. (1997), MANAGERIALACCOUNTING, Boston MA, Irwin McGraw Hill.10. Omolehinwa, A. (2008), WORK-OUT MANAGEMENTACCOUNTING, 5 th Edition, Ikeja, Lagos: Cleo International.11. Omolehinwa, O.E. (1991), COPING WITH COSTACCOUNTING, Lagos: Dun Mark Publishers.12. Samuelson, P.A. (1980), ECONOMICS, Tokyo: McGrawHill.13. Solomon, P. (2001), INFORMATION FOR DECISIONMAKING, Jangpura, India: Vikas Publishing House.14. Werkmeister, C. (n.d), “Multi-Product Break-EvenAnalysis”, Retrieved February 18, 2012 from http://controwiki.de/index.php?title=Multi-product_break-even-analysis.* Professor Enyi lectures Accounting at Babcock BusinessSchool, Babcock University, Ilishan-Remo, Ogun State.THE NIGERIAN ACCOUNTANT 31October/December, 2012
News/EventsOtunba Femi Deru, 2 nd Deputy Vice President, ICAN receiving theaward from Rotimi Shodimu, Registrar, UNILAG while Soji Odukoya,Deputy Registrar, Admin., ICAN watches in admirationICAN Bags UNILAG AwardThe Institute of Chartered Accountants of Nigeria (ICAN)added another feather to its cap on Friday, November16, 2012 when it joined the league of eminent recipients ofaward to major donors/partners and the formal launching ofthe University of Lagos (UNILAG) Donors Forum.The event which took place at the Multipurpose HallA&B at UNILAG, was organised under the distinguishedChairmanship of Deacon (Dr.) Gamaliel Onosode, Pro-Chancellor and Chairman of Council, UNILAG, to celebratethe 50 th Anniversary of the Ivory Tower which has contributedimmensely to capacity building in Nigeria and to making LagosState the Centre of Excellence.Listed under the Bronze category, ICAN was awardedalongside others like Zenith Bank, Unilever Plc, LagosChamber of Commerce and Industry, etc, in recognition of theInstitute’s positive contribution and commitment to promotingscholarship and academic excellence in the University. Theaward was received on behalf of the Institute by Otunba FemiDeru, 2 nd Deputy Vice President and Soji Odukoya, DeputyRegistrar, Administration.AppointedMr. Jim Obazee, the Chief Executive Officer, FinancialReporting Council of Nigeria, has been elected as theChairman of the 29 th session of the United Nations Conferenceon Trade and Development inter-governmental working groupof experts on International Standards of Accounting andReporting. This was the first time a Nigerian would be elected tochair the group of experts on this subject for the United Nations.UNCTAD-ISAR is a specialised inter-governmental forumbased on consensus building and voluntary cooperation amongparticipating countries. Every year, UNCTAD hosts the groupof experts from over 50 countries on topical global agendaon financial reporting and corporate governance and otherissues of common concern to member states besides informalexchange of experiences and best practices. Within the year,they also host sessions on issues of urgent global importancethat bear on institutional reforms and financial reporting.Established in 1964, UNCTAD promotes the developmentfriendlyintegration of developing countries into the worldeconomy.THE NIGERIAN ACCOUNTANT 55October/December, 2012
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