Documente Academic
Documente Profesional
Documente Cultură
“Flower Vase”
Section-01
Submitted to,
Mr. Sheikh Mohammad Rabby
Lecturer,
Department of Accounting & Finance
Submitted by,
Name ID
Iftay Khairul Ibrahim 1420974030
August 26th 2018
Mr. Sheikh Mohammad Rabby
Lecturer,
Dept. of Accounting & Finance (BBA)
North South University, Dhaka, Bangladesh
Subject: Permission for submitting the Group Project Report
Dear Sir,
Thank you for giving us the opportunity to make this project report which is the most important
part of our “ACT 333” course. As per your project guideline form, we have prepared our report
about the accountings of our product “FLOWER VASE”. In this report, we will be focusing on
the costing and pricing methods and strategies, budgeting, CVP analysis etc. for our assigned
product. Through the whole project we can gather lots of practical experience of using different
costing and pricing methods as well as different practical forecasting and assumption. As well
as, it also helps us to strengthen our communication skill and team management skill and
interpersonal skills in terms of various accounting tactics and estimations.
We enjoyed working on this, hope you will find it innovative. Have a good day.
Yours Sincerely,
Sensitivity analysis 26
Conclusion 27
Introduction
For a long time, flowers involved a vital place in our lives. Flowers are viewed as an image of
adoration, excellence and an endowment of nature. On the other hand, a vase is an open
holder. It can be produced using various materials, for example, pottery, glass, non-rusting
metals, for example, aluminum, metal, bronze or tempered steel. All things considered, looking
at a vase of flowers, nobody would propose that the glass vase simply made itself by
characteristic procedures. Nobody would surmise that a lightning strike on a heap of sand made
the vase. No, the vase plainly demonstrates that a gifted glassblower, utilizing his knowledge,
planned it. It is unreasonable to suspect something. There have sufficient demand of flower
vase in our country. Many people want to buy this for their home décor. We are providing the
flower vase in the base of customers’ demand. We make our products based on our consumer’s
preferences. Our product will be reasonable than others. We value our customer by satisfy
their needs. These are the main issue for choosing this assigned product.
Industry Analysis
Flower Vase is under the Home Décor Industry. Our competitors are:
Online shops
Physical Home décor shop
Flower based shop
Our main competitors are online shops, because they provide different kinds of flower vase
with reasonable price. But their weakness is their maximum products are not good. We will use
this weakness and go forward.
Manufacturing Process
Our company is based on manufacturing and selling. The raw materials for our product are:
Glass bottle.
Rope.
Glue gun.
Anti-cutter.
Scissor.
Firstly, we screw rope in the glass bottle.
Secondly, we use anti-cutter to plain the rope over the glass bottle
Thirdly, we use glue to add flower in the bottle.
Lastly, we use anti-cutter to do size the flower and use seizer to cut the rope.
Maximum we can produce
By considering our work process, we have estimated a certain number of products which can be
produced in a month. According to our presumption, we have 5 labors. We need 60 minutes to
produce a single unit of product working together. So, in an hour we can produce 1 unit of
flower vase.
Number of labor 5 labor
Number of working days in a month 25 days
Working hours per day 6 hours
Total working hour per day(5*6) 30 hours
Total working hours per month(30*25) 750 hours
Hours require to produce one product 1 hour
Maximum number of products in a month 750 products
Indirect Materials
Other MOH
Production Cost
The summation of direct materials, direct labor, and manufacturing overhead is production
cost. Following table shows the production cost per unit of flower vase.
Selling Cost
These costs are related to sell the product and marketing related activity just like delivery cost
or transportation cost.
Analysis of cost
Fixed Cost
This type of cost is remaining unchanged in total for a given period of time and within the
relevant range. On the other hand, per unit fixed cost is changing inversely on the basis of
production volume.
Fixed cost Total cost
Rent Tk. 5000
Utility Tk. 1000
Furnitures TK. 2000
Telephone Tk. 550
Internet Tk. 500
Delivery/ Transportation Tk. 1200
Total cost per unit (10250/750) Tk.13.6(Approx.)
Variable Cost
A cost that changes in total in proportion to a change in the level of activity but per unit
variable cost remains the same within the relevant range.
Direct cost
Costs which we can trace in a product in an economically feasible way and its related to a
particular cost object.
Prime cost
This cost is consisting of all direct cost. Our direct costs are basically direct material and direct
labor cost.
Prime cost Cost per unit
Full Cost
Full cost is basically the mixture of all variable and fixed cost. We need this to determine the
selling price of a product.
We will use Direct Manufacturing labor hour as the cost allocation base to allocate indirect
cost to each flower vase under simple costing system.
Under simple costing system companies use a broad average rate for assigning the cost of
resources to cost object when individual product uses those resources in non-uniform way.
Under this system company allocates its total indirect cost using a single cost allocation base.
Our company has one support department, Communication department, which has two cost
internet bill and telephone bill. And has three operating departments, Testing, Decoration and
Sales. Most of our internet cost occurs in decorating flower vase because we need get different
idea from different sources online about how to make our product more lucrative. As a result,
we have assigned 50% of our internet bill on Decoration department. 30% of our internet bill
has been assigned to sales department, only 10% of the internet cost has been assigned to
Testing department. We also assumed that internet bill 10% provide on its own support
department of telephone bill.
65% of the telephone bill incurred on sales department to get to know from customers which
type of product they want. 20% of telephone bill has been assigned to Testing department. 15%
of the telephone cost incurred on Decoration department. Here we assigned 10% telephone bill
on internet bill.
Activity Based Costing
ABC system is a costing system in which each individual activity is identified as a cost object and
there is separate cost driver for each of the activity.
The table in the next page shows all the indirect costs and cost drivers for each of them:
Cost
Cost Items Allocation Unit of Cost per unit
Number of units
Scissor 750 Units tk. 125 tk. 0.17 per unit
produced
Number of square
Rent 500 tk. 5000 tk. 10 per sq. feet
square feet feet
No of unit Units
Furniture 750 Tk.2000 Tk.2.67 Per unit
produced
Number of direct
Utility 750 hour tk. 1000 tk. 1.33 per direct labor hour
labor hours
Number of unit
Internet Bill 750 Calls tk. 500 tk.0.66 per unit
produced
We purchased Scissor on the basis of number of unit produced. So allocation base will be on
number of unit to be produced. Room is rented on the basis of square feet and total cost varies
with respect to a change in the size of the room. So, number of square feet is the best cost
driver for rent. Glue gun & furniture allocation base will be on number of unit we have. Our
utility costs include electricity, water bill. And these costs tend to vary over different level of
direct labor hour. So, Number of direct labor hour is the best cost allocation base for utility.
Telephone bill depends on the number of phone calls. Cost will be less if number of call is less
and cost will be more if number of call is more. So, number of phone call has the best cause and
effect relationship with telephone bill cost. Total internet bill changes if there is a changes in
the unit produced. So, number of unit produced is the best cost drivers for Internet and
telephone bill. Transportation cost will change on the basis of unit to be sold.
Overhead rate for Scissor = Total Scissor Cost / No. of units produced
= TK. 125 / 750
= TK. 0.17 per unit
Overhead rate for Rent = Total Rent Cost/ No. of Sq. Feet
= TK. 5000 / 500
=Tk. 10 per Sq. Feet
Overhead rate for glue gun = Total cost of glue gun/ No. of glue gun
= TK. 750 / 5
=Tk. 150 per glue gun
Overhead rate for furniture = Total cost of furniture/ No. of unit produced
= TK. 2000/750
=Tk. 2.67 per unit
Overhead rate for Utility = Total Utility cost / No. of direct labor hours
= TK. 1000/ 750
= Tk. 1.33 per DLH
Overhead rate for Telephone bill = Total Telephone Bill / No. of phone calls
= TK. 550 /275
= Tk. 2 per phone call
Overhead rate for Internet bill = Total Internet Bill / No. unit produced
= TK. 500 / 750
= Tk. 0.66 per unit
Overhead rate for Transportation bill = Total Transportation Bill / No. unit sold
= TK. 1200/ 750
= Tk. 1.6 per Unit sold
Unit Cost under ABC
Cost Items Calculation Cost Per Unit
Indirect Cost
Pricing Strategy
We are using cost-based pricing strategy. And we are expecting 30% return on investment. Our
product price per unit will be 200 tk. (cost based) and mark up is 65%.
Our profit margin under simple costing is approximately 22% of sales revenue. On the other
hand, our profit margin under activity based costing is approximately 21% of Sales Revenue.
Simple costing does not take into account the indirect costs whereas activity based costing
considers all indirect costs. Indirect costs are allocated by activity based costing by determining
and applying different allocation base to each cost. Therefore, activity based costing gives a
more accurate measure of cost. That is why, our profit margin is lower under activity based
costing than under simple costing.
Budget
Budget is basically the quantitative expression of a proposed plan of action by management for
a specified period. For different type of Budget Schedule, we are assuming something- Our
target Ending finished goods inventory is 15% of Budgeted unit sales
• Our Target Ending Direct material inventory is 15% of total material used in
production
• We have no beginning finished goods and direct material inventory
• Our target budgeted sales is 375 units
Total Units
Budgeted Sales Unit 675
(+) Target Ending Finished Goods 75
Inventory
(-) Beginning Finished Goods Inventory 0
Cost Budget:
Bottle(863*50) 43150
Rope(863*15) 12945
Flower(863*28) 24164
Glue(288*15) 4320
Total Cost of Direct Materials to 43150 12945 24164 4320 Tk. 84579
Be Purchased
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
Break-even in unit=𝑆𝑎𝑙𝑒𝑠 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡−𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
10.250
=
183−126.2
=181 units
𝑀𝑂𝑆 𝑖𝑛 𝑢𝑛𝑖𝑡𝑠
MOS percentage=𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑠𝑎𝑙𝑒𝑠
494
=675
=73.18%
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛
Degree of operating leverage= 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒
38,340
=28,090
=1.36 times
Our Margin of Safety ratio is 73.18%. This means that we are in a safe position. We will be able
to cover our Fixed Cost and reach Break-even. As a result of having a lower Fixed Cost, in terms
of MOS we have lower risk on our production.
Through our data we know our Operating Leverage is 1.36. So, our Contribution margin is 1.36
times of Operating income as result we can say very less amount of contribution margin is
offset by fixed cost and fixed is lower. So, if the sales are decrease by small amount, the
operating income will decrease by very lower amount.
Sensitivity analysis
Case 1: 12%increase of direct material cost
N.B: As a results of case 2, decreasing 10% demand on our product, our sales and Operating
Income decreasing respectively by 68 units and tk. 3862. On the other hand, as a results of case
3, increasing 15% demand on our product, sales and Operating Income increasing respectively
by 101 units and tk. 5737. Both the cases there is no impact on Fixed Cost.
Conclusion