management accounting (Absorption costing, budgeting, break even point)

Use the basic information given in Section A for developing your own business plan.

SECTION A: Business Case

Type of Business: Manufacturer

Type of product: Produce Sports Goods

Market: Local, national, International

Demand: ( Per month in Units for the above respective markets) 1000, 2000, 3000

Seasonality: Production and sales may vary as per the seasons

Credit terms: Customers -60 days,

Suppliers -40 days,

Labour -1 month

Administration -1 MONTH

Factory overheads-15 days

Selling expenses- Spot Payment

Sources of Fund for investment

Own savings – £20,000

Loan -As much as needed from banks

Materials required for producing one unit:-

Wood

1.5 mtrs

@£ 3.10 per mtr

Leather

1mtr

@£ 25.00 per

mtr

Polish

200 grams

@£2.20 per gram

Cloth

0.5mtr

@1.20 per mtr

Wages per unit

Skilled staff-

£15.00per hour

Unskilled staff

£8.00 per hour

Overtime payments per hour

1.5 times of hourly payment

Overheads per year

Factory lighting

£22,000

Factory rent –

£25,000

Factory cleaning

£10,000

Administration expenses

£16,000

Selling expenses-

£12,000

Delivery van expenses

£7,000

Office rent

£10,000

Bank interes

@ 8% pa

Machinery quoted for a price of £10,000 can be used for producing 3000 units monthly.

SECTION B

Assignment Task:

Task 1 is a report. In the report you are required to:

a) Indicate the importance of management accounting in managing your organisation.

b) Evaluate the main cost structures of your organisation

c) Determine the price and break even sales needed for your product for a successful business, by using appropriate methods.

The student must use the information provided in the business case for creating own business plan.

Give a detailed introduction of the business you intend to start to convince the bank manager about its feasibility.

1. (1000 words)

While analysing the cost requirements need to:

Identify and classify different elements of cost to be included in a statement of cost.

Establish the requirement of fixed and variable cost of a business with sufficient examples.

Provide an explanation regarding which method of pricing you used to arrive at the target selling price and the underlying assumptions to support your figures for break- even point.

Outline the implication of bank loan as a source of capital for the business. (1000 words)

2. (400 WORDS)

Explain the need of forecasting correctly the revenues, expenses and cash incomings and out goings with the help of budgets.

. Incorporate the seasonal nature of the demand for your product into those budgets. (Max 400 words)

3. Big business decisions are made on the basis of estimated figures. Comment on the possibility of making a good business out of your current product. Your assumptions need be supported by the figures estimated. ( Max 200 words)

4. Outline the importance of management accounting in managing your organisation and establish how management accounting is different from financial accounting( Max 300) words)

SECTION C: APPENDICES

Differentiate fixed cost and variable costs taking into consideration the initially identified cost of start-up of your business using a “standard Cost Card”

Prepare a BREAK EVEN CHART by using the relevant financial information and mark the break- even point and sales and margin of safety.

Prepare for the first three months from the intended date of launching your business as per the business proposal.

1. Sales Budget

2. Production Budget

3. Cash budget

Below is an indicative structure of your report:

Title page

Table of content

A list of all the chapters, sections, headings and subheadings and appendices should be provided as well as the page numbers as clearly as possible.

Introduction/Executive summary

This should show that you have understood the brief and that you will cover everything required.

Findings and Analysis

This is the substance of your report. The structure will vary depending on the material being presented. Headings and sub-headings should be used to indicate clearly the different sections.

Charts, diagrams and tables can be used to reinforce your arguments, although it may be better to include the more complex ones as an appendix.

Conclusion

This provides an end to your report through a summary of the important points in your discussion. Remember not to include any new material here.