Management Accounting

This document provides a marginal costing statement and financial statements for the first 12 months of trading for a new skin care product. It includes information on expected sales, variable costs, fixed costs, and profit. The document also includes a cash budget and income statement for each month, as well as a cash flow statement. The subject is Management Accounting.

1
Management Accounting

2
Part A: Marginal Costing Statement of the product
The new skin care product launched by “Hadison Beauty” will have selling price of
$150.00 and it is estimated that the marginal cost to sales (Inclusive of all expenses except fixed
expenses) will be around 45% of sales. Cost of sales will include both variable cost and fixed
expenses that will occurred during the period. In order to lay down the marginal cost statement
of the skin care product it is very essential to break down the cost structure into variable cost and
fixed cost (Brigham and Michael, 2013).
Expected Sales during the year 16051 Units
Unit Price
£
150.00
Total Sales
£
2,407,650.00
(Products, 2019)
Marginal Costing Statement (Per Unit)
Particulars Amount Amount
Selling Price £ 150.00
Less: Variable cost
Material £ 22.50
Labour £ 30.00
Variable overhead £ 15.00
Marginal Cost £ 67.50
Contribution £ 82.50
Less: Fixed Cost (Total Fixed
cost/number of units) £ 51.19
Profit £ 31.31
(Damodaran, 2011)
Marginal Costing Statement (Per Year)
Particulars Amount Amount
Revenue £ 2,407,650.00
Less: Variable cost
Material £ 361,215.00
Labour £ 481,620.00
Variable overhead £ 240,810.00
Marginal Cost £ 1,083,645.00
Contribution £ 1,324,005.00

3
Less: Fixed Cost (Total Fixed
cost/number of units) £ 821,610.00
Profit £ 502,395.00

4
Part B: Financial Statements for first 12 months of trading
B.1: Cash Budget (Month by month)
Income Statement (Month Wise)
Months TOTAL
Units Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total Sales Units 750 825 908 999 1099 1209 1330 1463 1609 1770 1947 2142 16051
Online Web Sales
(55%) - All Cash 413 454 499 549 604 665 732 805 885 974 1071 1178 8829
Store Sales (15%) 113 124 136 150 165 181 200 219 241 266 292 321 2408
Sale through agents
(30%) 225 248 272 300 330 363 399 439 483 531 584 643 4817
Unit Selling Price £
150.00
£
150.00
£
150.00
£
150.00
£
150.00
£
150.00
£
150.00
£
150.00
£
150.00
£
150.00
£
150.00
£
150.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Revenue
Online Web Sales
(55%) - All Cash
£
61,950
£
68,100
£
74,850
£
82,350
£
90,600
£
99,750
£
109,80
0
£
120,75
0
£
132,75
0
£
146,100
£
160,650
£
176,700
£
1,324,35
0
Store Sales (15%)
£
16,950
£
18,600
£
20,400
£
22,500
£
24,750
£
27,150
£
30,000
£
32,850
£
36,150
£
39,900
£
43,800
£
48,150
£
361,200
Sale through agents
(30%)
£
33,750
£
37,200
£
40,800
£
45,000
£
49,500
£
54,450
£
59,850
£
65,850
£
72,450
£
79,650
£
87,600
£
96,450
£
722,550
Total Revenue
£
112,65
0
£
123,90
0
£
136,05
0
£
149,85
0
£
164,85
0
£
181,35
0
£
199,65
0
£
219,45
0
£
241,35
0
£
265,650
£
292,050
£
321,300
£
2,408,10
0
Expenses
Labour charges or
Wages
£
22,530
£
24,780
£
27,210
£
29,970
£
32,970
£
36,270
£
39,930
£
43,890
£
48,270
£
53,130
£
58,410
£
64,260
£
481,620
Material
£
16,898
£
18,585
£
20,408
£
22,478
£
24,728
£
27,203
£
29,948
£
32,918
£
36,203
£
39,848
£
43,808
£
48,195
£
361,215
Indirect variable
cost
£
11,265
£
12,390
£
13,605
£
14,985
£
16,485
£
18,135
£
19,965
£
21,945
£
24,135
£
26,565
£
29,205
£
32,130
£
240,810
Depreciation
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
9,167
£
110,000

5
Factory and office
Rent
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
78,000
Heat/light
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
39,000
PR/advertising
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
54,000
Telephone/fax
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
13,800
Insurance
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
27,000
Repairs/
maintenance
£
-
£
-
£
-
£
-
£
-
£
40,000
£
-
£
-
£
-
£
-
£
57,000
£
97,000
Professional fees
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
42,000
Interest
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
120,000
VAT
£
11,265
£
12,390
£
13,605
£
14,985
£
16,485
£
18,135
£
19,965
£
21,945
£
24,135
£
26,565
£
29,205
£
32,130
£
240,810
Total Expenses
£
102,27
4
£
108,46
2
£
115,14
4
£
122,73
4
£
130,98
4
£
180,05
9
£
150,12
4
£
161,01
4
£
173,05
9
£
186,424
£
200,944
£
274,032
£
1,905,25
5
Net Profit
£
10,376
£
15,438
£
20,906
£
27,116
£
33,866
£
1,291
£
49,526
£
58,436
£
68,291
£
79,226
£
91,106
£
47,268
£
502,845
(Davies and Crawford, 2011)
Cash Flow Statement (Month Wise)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TOTAL
Revenue (Cash
Inflows)
Online Web Sales
(55%) - All Cash
£
43,365
£
66,255
£
72,825
£
80,100
£
88,125
£
97,005
£
106,78
5
£
117,46
5
£
129,15
0
£
142,095
£
156,285
£
171,885
£
1,271,34
0
Store Sales (15%)
£
11,865
£
18,105
£
19,860
£
21,870
£
24,075
£
26,430
£
29,145
£
31,995
£
35,160
£
38,775
£
42,630
£
46,845
£
346,755
Sale through agents
(30%)
£
23,625
£
36,165
£
39,720
£
43,740
£
48,150
£
52,965
£
58,230
£
64,050
£
70,470
£
77,490
£
85,215
£
93,795
£
693,615
Total Revenue £ £ £ £ £ £ £ £ £ £ £ £ £

6
78,855
120,52
5
132,40
5
145,71
0
160,35
0
176,40
0
194,16
0
213,51
0
234,78
0 258,360 284,130 312,525
2,311,71
0
Expenses (Cash
Flow)
Labour charges or
Wages
£
22,530
£
24,780
£
27,210
£
29,970
£
32,970
£
36,270
£
39,930
£
43,890
£
48,270
£
53,130
£
58,410
£
64,260
£
481,620
Material
£
16,898
£
18,585
£
20,408
£
22,478
£
24,728
£
27,203
£
29,948
£
32,918
£
36,203
£
39,848
£
43,808
£
48,195
£
361,215
Indirect variable
cost
£
11,265
£
12,390
£
13,605
£
14,985
£
16,485
£
18,135
£
19,965
£
21,945
£
24,135
£
26,565
£
29,205
£
32,130
£
240,810
Factory and office
Rent
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
6,500
£
78,000
Heat/light
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
3,250
£
39,000
PR/advertising
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
4,500
£
54,000
Telephone/fax
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
1,150
£
13,800
Insurance
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
2,250
£
27,000
Repairs/
maintenance
£
-
£
-
£
-
£
-
£
-
£
40,000
£
-
£
-
£
-
£
-
£
57,000
£
97,000
Professional fees
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
3,500
£
42,000
Interest
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
10,000
£
120,000
VAT
£
-
£
-
£
-
£
-
£
-
£
-
£
-
£
-
£
-
£
-
£
-
£
-
£
-
Total Expenses
£
81,843
£
86,905
£
92,373
£
98,583
£
105,33
3
£
152,75
8
£
120,99
3
£
129,90
3
£
139,75
8
£
150,693
£
162,573
£
232,735
£
1,554,44
5
Net cash flow
IN/OUT
-£
2,988
£
33,620
£
40,033
£
47,128
£
55,018
£
23,643
£
73,168
£
83,608
£
95,023
£
107,668
£
121,558
£
79,790
opening balance
/(deficit)
£
450,00
0
£
447,01
3
£
480,63
3
£
520,66
5
£
567,79
3
£
622,81
0
£
646,45
3
£
719,62
0
£
803,22
8
£
898,250
£
1,005,91
8
£
1,127,47
5

7
Closing balance
/(deficit)
£
447,01
3
£
480,63
3
£
520,66
5
£
567,79
3
£
622,81
0
£
646,45
3
£
719,62
0
£
803,22
8
£
898,25
0
£
1,005,91
8
£
1,127,47
5
£
1,207,26
5
(Krantz, 2016)

8
B.2: Forecast Income Statement (For the year)
Forecast Income Statement
Revenue Amount Amount
Online Web Sales (55%) - All Cash £ 1,324,350.00
Store Sales (15%) £ 361,200.00
Sale through agents (30%) £ 722,550.00
Total Revenue £ 2,408,100.00
Expenses
Labour charges or Wages £ 481,620.00
Material £ 361,215.00
Indirect variable cost £ 240,810.00
Depreciation £ 110,000.00
Factory and office Rent £ 78,000.00
Heat/light £ 39,000.00
PR/advertising £ 54,000.00
Telephone/fax £ 13,800.00
Insurance £ 27,000.00
Repairs/maintenance £ 97,000.00
Professional fees £ 42,000.00
Interest £ 120,000.00
VAT £ 240,810.00
Total Expenses £ 1,905,255.00
Net Profit £ 502,845.00
(Moles and Kidwekk, 2011)

9
B.3: Forecast Balance Sheet (For the year)
Forecast Balance Sheet Statement (At the end of year)
Particulars Amount Amount
Assets
Current Assets
Cash £ 1,207,265.00
Account Receivables £ 96,390.00
Supplies £ 150,000.00
Total £ 1,453,655.00
Non Current Assets
Building £ 850,000.00
Less: Accumulated Depreciation -£ 85,000.00
Equipments £ 250,000.00
Less: Accumulated Depreciation -£ 25,000.00
Total £ 990,000.00
Total Assets £ 2,443,655.00
Liabilities and Equity
Current Liabilities
Account Payable £ 240,810.00
Total £ 240,810.00
Non Current Liabilities
Bank Loan £ 1,200,000.00
Total £ 1,200,000.00
Equity
Owner's Capital £ 500,000.00
Add: Net profit of the year £ 502,845.00
Total £ 1,002,845.00
Total Equity and Liabilities £ 2,443,655.00
(Phillips and Stawarski, 2016)

10
Part C: Business Report for the investors
Background to the Scenario
This assessment has been carried out in the context of facilitating the decision-making
process of potential investors for a new start up regarding the launching of new skincare product
that aims to bring revolution within the skincare market. This required acquiring good
knowledge regarding the cost of developing the product and determining the expected level of
sales and profitability position of the product in the future context. In this context, this
assessment has been developed to assist a potential investor in making decisions regarding
investing within the new product. As such, it has developed and presented a margin costing
statement for the new product on per unit and per year basis. This is followed by producing the
financial documents for the initial 12 months of trading to depict the cash budget, forecasted
income and balance sheet. This is followed by providing an overall analysis of the costing and
financial data that has been developed in a report format.
The present report is developed for providing an explanation of the costing and financial
data developed for presenting information to the potential investors for decision-making. The
costing and financial data developed in the cash budget, forecast income statement and balance
sheet that have been prepared in the context of developing a new skincare product for
revolutionizing the market.
Business Information
 Name: Hadison beauty
 Location: London
 Organization Structure: Pyramid Style
 Legal Setup: Private owned company
 Number of Employees: 40-50
 Flagship Product: Anti Acne and Nourishing Cream (Skincare)
Details about Cost structure and information about the sales
The focus of this business report will be limited to flagship product anti acne and
nourishing cream (Skincare) sold by Hadison Beauty. There are only two materials required to
produce this product M1 and M2. Cost of direct material amounts to $10.00 for M1 and $12.50
for M2. There are three types of labour needed to manufacture anti acne and nourishing cream
(Skincare) and these labour will be occurred in three departments. These three departments are
mixing department, quality checkup and packaging. Direct labour cost per unit of anti acne and
nourishing cream (Skincare) will be $30.00. There are some expenses incurred as variable
overhead and they are supplies (Indirect material), machine workers (indirect labour) and other
variable overhead. Variable overhead expenses per unit amount to $15.00 and include all indirect
expenses (variable). The sales price per unit of Anti Acne and Nourishing Cream (Skincare) has
been set at $150.00 to meet up all the variable expenses and to bear all the fixed cost
(Damodaran, 2011). List of fixed cost expenses and variable expenses have been listed below:

11
Fixed Cost Expenses
Items Total Units Per Unit
Depreciation £ 110,000.00 16051 £ 6.85
Factory and office Rent £ 78,000.00 16051 £ 4.86
Heat/light £ 39,000.00 16051 £ 2.43
PR/advertising £ 54,000.00 16051 £ 3.36
Telephone/fax £ 13,800.00 16051 £ 0.86
Insurance £ 27,000.00 16051 £ 1.68
Repairs/maintenance £ 97,000.00 16051 £ 6.04
Professional fees £ 42,000.00 16051 £ 2.62
Interest £ 120,000.00 16051 £ 7.48
VAT £ 240,810.00 16051 £ 15.00
Total Fixed Cost/Per unit fixed cost £ 821,610.00 £ 51.19
Variables Expenses
Items Total Per Unit
Labour charges or Wages £ 481,620.00 £ 30.00
Material £ 361,215.00 £ 22.50
Indirect variable cost £ 240,810.00 £ 15.00
(Schlichting, 2013)
Some of important assumptions made to produce all the cash budget, income statement and
balance sheet are as follows:
 70% of sales will collected in the same month and rest in following month
 Unit Sales price will amount to $150.00
 100% of expenses are paid during the same month
 VAT expenses are paid in the following year
 Depreciation is charged at 10% on both equipment and building
 It is estimated that 55 % of sales made through web sales, s15% through store sales and
30% through agents
 It is expected that labour & wages expenses will be 20% of sales
 It is expected that material expenses will be 15% of sales
 It is expected that indirect variable expenses will be 10% of sales
 Total variable expenses is 45% of sales
 Fixed cost expenses includes depreciation, factory & office rent, light expenses,
advertising expenses, telephone expenses, repair and maintenance expenses, professional
fees, interest and VAT expenses.
 There is no inflation in expenses
 There are no drawings
 Long term loan amount to $1,200,000 and interest amount to 10% per year. No principle
will be made during the year

12
Opening Balance Sheet (On the basis of capital funded and assets purchased)
Forecast Balance Sheet Statement (At the beginning of year)
Particulars Amount Amount
Assets
Current Assets
Cash £ 450,000.00
Account Receivables £ -
Supplies £ 150,000.00
Total £ 600,000.00
Non Current Assets
Building £ 850,000.00
Less: Accumulated Depreciation £ -
Equipments £ 250,000.00
Less: Accumulated Depreciation £ -
Total £ 1,100,000.00
Total Assets £ 1,700,000.00
Liabilities and Equity
Current Liabilities
Account Payable £ -
Total £ -
Non Current Liabilities
Bank Loan £ 1,200,000.00
Total £ 1,200,000.00
Equity
Owner's Capital £ 500,000.00
Total £ 500,000.00
Total Equity and Liabilities £ 1,700,000.00
Analysis of cash budget and forecast financial statements
On the basis of review of cash flow statement it can be said that Hadison Beauty will able
to produce enough cash flow during the first year of operation and will able to satisfy all the cash
expenses required to pay in current period. Cash expenses do not include depreciation & VAT
expenses, and they are also not considered in cash expenses. Cash are collected from three line of
revenue stream and 70% of them are collected during the same month and rest in next month.
The opening and closing cash balance during the year are $450000 and £1,207,265 respectively.

13
Overall financial performance of Hadison Beauty will be strong if all things go well and business
plan moves as it was expected (Reilly and Brown, 2011).

14
References
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Damodaran, A, 2011. Applied corporate finance. USA: John Wiley & sons.
Davies, T. and Crawford, I., 2011. Business accounting and finance. USA: Pearson.
Krantz, M. 2016. Fundamental Analysis for Dummies. USA: John Wiley & Sons.
Moles, P. and Kidwekk, D. 2011. Corporate finance. USA: John Wiley &sons.
Phillips, P.P. and Stawarski, C.A. 2016. Data Collection: Planning for and Collecting All Types
of Data. USA: John Wiley & Sons.
Products. 2019. David Jack. [Online]. Available at:
https://drdavidjackskincare.com/collections/packages [Accessed on: 19 April, 2019].
Reilly.F.K. and Brown.K.C. 2011. Investment analysis & portfolio management. UK: South
western Cengage learning.
Schlichting, T. 2013. Fundamental Analysis, Behavioral Finance and Technical Analysis on the
Stock Market. Australia: GRIN Verlag.