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.
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