Advance Management Accounting and Performance Management

This article provides detailed information on Advance Management Accounting and Performance Management. It covers topics such as company summary, product description, competitive comparison, market analysis, market segmentation, manufacturing details, credit limits and funding, cash flow, assumptions for borrowing and break-even, and more.

Running head: ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE
MANAGEMENT
Advance management accounting and performance management
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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
Table of Contents
Introduction................................................................................................................................2
Company summary................................................................................................................2
Product description.................................................................................................................2
Competitive comparison........................................................................................................2
Market analysis......................................................................................................................2
Market segmentation..............................................................................................................3
Discussion..................................................................................................................................3
Assumptions...........................................................................................................................3
Manufacturing details.............................................................................................................4
Credit limits and funding.......................................................................................................6
Cash flow...............................................................................................................................6
Assumptions for borrowing and break-even..........................................................................6
Conclusion..................................................................................................................................7
Reference....................................................................................................................................8
Appendices.................................................................................................................................9

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
Introduction
Company summary
Chair Craft Manufacturing Company (CCMC) is the privately owned special
manufacturer of special type of office chair to be used in the office that will be comfortable
for computer users and others. Customers for the chairs can be from all business levels who
can afford high quality office chairs. Chair Craft Manufacturing is owned by 2 friends John
Edwin and Graham Del who have more than 10 years of experience of furniture business.
The registered office for the business will be in Greenwich, London. Initially the product will
be supplied all over London (Bentley, Omer and Sharp 2013). However, the company is
planning to expand its business and is planning to deliver its product all over UK over the
period of next 5 years. Key to the line of the product is that it will be ergonomically effective
chair and will look like executive chair still fulfilling the requirements of all the office
people.
Product description
The chair will have various versions that will look elegant as office furniture and will
be ideal for all office users including the computer users. Two major elements of the chair are
that the height of the chair can be adjusted as per requirement and it can be revolved 360
degree. Further, the company will manufacture custom designed chair as per exact required
measurement of the customers (Jones and Allen 2014).
Competitive comparison
Within the niche the company will have 2 major competitors – The Contract Chair
Company and The Dining Chair Company. The Contract Chair Company manufactures the
upholstered dining chairs those are manufactured and designed in UK. Their products are
manufactures as per order and are delivered all over UK and Italy. On the other hand, The
Dining Chair Company provides requirement of hospitality furniture industry and delivers the
product from the European Manufacturers (Verbeke 2013). They offer their customers with
convenience, choice and continuity. However, the major competitive advantage of CCMC is
the price. It will sell the product at lower price as compared to the competitors. Sales price of
the product will be £ 1,500 per unit whereas the same category of office chair sold by The
Contract Chair Company is sold at £ 1,900 and at £ 1,750 by The Dining Chair Company
(McKenzie 2015).

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
Market analysis
Target market of the company is the person working in office who wants to buy the
chairs with latest technology in association with fine wood workings and best quality of
woods. Segment strategy of target market is not trying to satisfy all the requirements of the
office furniture rather concentrating only on different types of chairs. Further, the company
will definitely address the requirements of high-end buyer with customized need who will be
willing to pay higher amount per product. From the market research it is observed that the
customers need more than just the office furniture (Scarborough 2016). They also need
reassurance of the wood, quality and good workmanship. As per the research it is found that
the market for office furniture is rapidly growing and is expected that it will grow at 12% -
15% for the next 3 years.
Market segmentation
Home offices – after year 1990 demand for the furniture for home offices has been rapidly
increased. Further the people working outside home also have home offices and therefore the
home offices are growing at a faster rate. The home office market is big that is amounted to
more than 40 million and CCMC can earn big amount of revenue from this sector (Klettner,
Clarke and Boersma 2014).
Small business owners – customer survey of the company indicates strong market within the
business owners with less than 100 employees. There are more than 20 million of such
businesses in the country that are concentrated on ownership. Therefore, the owners here are
the potential customers.
Corporate executives – market survey of the company indicates that approximately 5 million
of potential customers including managers and directors of companies. Target customers
from this sector will be high executives as the purchase price is high as compared to the
standard office furniture.
Discussion
Assumptions
 Costs – it is assumed that total start-up requirement will be £ 54,59,000. This cost will
include both start-up costs and cost of equipment and office furniture. Various start-
up costs will include the costs for business registration including business name,

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
permits, license, trade-marks, patents, designs, insurance costs for building, public
liability, business assets and vehicle and other costs including solicitors fees,
accountant fees, computer software, training costs, employee wages advances and
stock of the raw material (Hiduke and Ryan 2013).
 Revenue – it is assumed that the revenue of the company for the 1st year of operation
will be £ 50,00,000. However, it will increase by 12% in the 2nd year and by 14% in
the 3rd year. The cost of goods sold for the 1st year will be 60% of the revenue
however; the COGS for 2nd year and 3rd year will be reduced to 58% (Rackley 2015).
 Demand – demand for the new product majorly depend on the advertising strategies
of the company. Therefore, the company will advertise for its product through local
television channel, radio, hoardings and distributing pamphlets is various offices. It is
expected that in the 1st year of business the company will spend £ 120,000 for
advertising. However, the advertising expenses will be lowered in next 2 years.
Further, the UK office furniture market has grown by 4% till 2016 and is expected to
maintain the same growth rate till 2020 (Amaresearch.co.uk 2018). However, all the
excess productions are absorbed by the market. Demand for individual product like
executive chairs are expected to grow continuously that reflects technological
development and changing practices of work. Further, the people working from the
home as self-employed or as employees are expected to grow up steadily as the
companies realised that they will be benefitted through providing flexible working
arrangements to the staffs (Haag 2013).
 Supply – CCMC will supply its products through 2 channels – retail sale and online
sale. Retail sale. 5 retila stores will be opened all over London for direct selling.
However, the company is planning to open more stores over the next 5 years of
operation. Accessories and light weight chairs will be sold through online apart from
the online sale. Expected delivery time will be 10-12 days. However, if the order is
receives for any customized design the supply will be made in 45-60 days (Baker
2014).
Manufacturing details
The manufacturing location of the company will be distinct advantage for receiving
local wood. The company can further buy higher quality of cherry and oak as compared to
the competitors. Further, owing to high volumes of production company will be eligible to
get the raw materials that are the woods at discount (Sharda, Delen and Turban 2013). The

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
company will work mainly with 3 suppliers and all are local. Most of the oak and some
cherry woods will be provided by Wood Green Timber. It is well known for providing quality
goods and services with good prices. T chambers & Son Timber Merchant Ltd. are 2nd best
choice, especially for cherry and some specialty woods. T & T Timber Merchants will be
used as the 3rd source and back up source when 2 other suppliers will not be able to supply
sufficient requirement. The company will further work with various specialty manufacturers
for the purpose of drawer accessories, furniture fittings, shelving accessories, glass and
associated purchases. Although initially CCMC will not be able to become major player as
compared as compared to the major manufacturers for furniture, it is expected to become
biggest buyer of customized raw materials. As most of the suppliers deliver through supply
chains of carpenters they will treat CCMC as major customer (Hill 2017).
Price quote received from various suppliers are as follows –
Suppliers with
websites
Logo Oak Cherr
y
Wood Green Timber –
https://
www.woodgreentimbe
r.com/
£ 125 per
board feet
£ 150
per
board
feet
T chambers & Son
Timber Merchant Ltd
–
http://
www.tchamberstimber
.co.uk/
£ 145 per
board feet
$ 140
per
board
feet
T & T Timber
Merchants –
http://tttimber.co.uk/
£ 150 per
board feet
£ 160
per
board
feet

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
The company will depend on dominance of latest ergonomic technology that will be
combined with classic designs of the fine furniture. It ensures to be on top of the technologies
with regard to communications, display, output and input, further, the assembly patents of the
company is major competitive advantage. No competitor will be able to match the technique
that will be used by the the company will turn the drawback – assembling the product into
feature. Further, the customer survey indicates that customers consider interlocking system of
assembly as the improvements to sense of quality (Leschke 2013).
Credit limits and funding
The financial picture of the company is encouraging. It is slow is taking debt,
however with the increase in the sales it is expected to apply for bank credit to the limit of £
25,00,000. The credit line of the company will easily be supported by the assets.
Cash flow
The opening cash balance of the company in the month of January will be £ 100,000.
Further cash will be received from product sales and various other incomes. Debtors will be
given 2 months credit period; therefore, receipts from debtors will be received from the
month of March (Titman, Keown and Martin 2017). Major amount of cash outflow will take
place for purchasing the stock of woods and other raw materials. Accountant’s fees will be
same at £ 4,583.33 throughout the year. Advertising expenses and bank fees will be £ 10,000
each for each month. Interest amounted to £ 3,000 and loan payments amounted to £ 12,500
will be paid quarterly. All other expenses will be paid monthly as and when incurred. Closing
cash balance at the end of the year is expected to be £ 43,69,899.67 (Blackburn, Hart and
Wainwright 2013).
Assumptions for borrowing and break-even
It is assumed that out of total start-up requirement amounting to £ 54,59,000, 40% of
that that is the amount of £ 21,83,600 will be borrowed from bank and financial institutions
and rest 60% that is £ 32,75,400 will be raised through equity. 60% will be raised through
equity as against the debt of 40% as the debt are to be repaid at certain point of time and the
interest on debt must have to pay even if there is no profit in business as the interest is fixed
cost. Further, the company is required to pledge the particular asset in exchange of debt as
security. Moreover, sometimes the owners are required pledge their personal asset as
security. High debt equity ratio represents the company as highly leveraged and the potential
investors will be less interested in such company that is exposed to high financial risks.

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
Further, equity is helpful for those companies who wish to issue their shares publically as the
company is required to bear various costs for conducting IPO.
Break-even point is the point at which market price of the security is equal to original
cost. In other words, the the seller must reach that point to avoid the loss and making profits.
An important term used in computing break-even point is the contribution margin that is
equal to revenues reduced by the variable expenses. For the business owners those are
specialized in accounting, conducting the breakeven analysis is crucial step for determining
the sales volume for covering up the costs. It is particular computed for the start-up
businesses that require projecting the initial goal for sales. If the company is computing the
break even for the 1st time the company shall take into consideration the most sold services or
products for computing the break even unit. Therefore, Chair Craft Manufacturing Company
will consider the office chairs for computing the break even unit. Further, the company is
required to gather various information regarding the product that include sales price for the
product, variable cost of the product, net profit from selling of the product. These figures are
crucial as it is the simplest way for the business to evaluate the impact on break even if any of
the cost changes. However, if the fixed cost is higher the breakeven point will be higher
which in turn will require the company to sell more units for covering up the costs. Working
on the breakeven will assist the managers and owners in gaining better insights regarding the
price accuracy and reliability of the sales goals. However, if the amount of sales required by a
company for breakeven is greater than the unit it can achieve realistically, the business will
know the services or products it requires to price well or reduce the cost of manufacturing the
product. Apart from that the business owners shall know the contribution per unit that will
make the overall profit of the company. This step is crucial as it can assist the business to
determine the actual profitability of the business. It will further help the company in revising
the price of the product oir minimising the cost.
It is calculated through dividing the fixed costs by sales per unit reduced by variable
cost per unit. For calculating the break even unit of the product it is assumed that the price of
each unit will be £ 1,500. It is assumed that 70% of the selling price that is £ 1,050 will be
cost of goods sold per unit. If the fixed cost is assumed to be £ 450,000, the company will be
required to sell 1000 units to break even.

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
Conclusion
From the above discussion it is concluded that the business plan has various positive
aspects considering which the business can be started and expanded. It is identified that the
business will require £ 54,59,000 for start-up. Out of which 60% can be raised through equity
and 40% from borrowing. Hence, the business at initial levels will not be overburdened with
financial obligations and interest on that. Taking into consideration the growth rate of office
furniture market it is expected that the sales will eventually be increased by 12% in the 2nd
year and 14% in the 3rd year. Further, the operating expenses are expected to be reduced in 2nd
year and further in 3rd year. As the debtors will be allowed only 2 months credit, from 3rd
months the business will start receiving the dues from debtors. Further, as large proportion of
sales on 1st year will be made on cash basis it is expected to have sufficient cash to meet
operational expenses. Further, as per the break-even computation the company will be able
earn profit if it can sell 1000 units. However, looking at the demand trend of office furniture
for last few years it can be stated that company will easily be able to sell much more than
1000 units. Therefore, it is recommended to go ahead with the business plan and implement it
as it has various positive aspects.

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
Reference
Amaresearch.co.uk., 2018. 4% growth in the UK office and home office furniture market in
2016. [online] Available at: https://www.amaresearch.co.uk/blogs/4-growth-in-the-uk-office-
and-home-office-furniture-market-in-2016 [Accessed 11 Jul. 2018].
Baker, M.J., 2014. Marketing strategy and management. Macmillan International Higher
Education.
Bentley, K.A., Omer, T.C. and Sharp, N.Y., 2013. Business strategy, financial reporting
irregularities, and audit effort. Contemporary Accounting Research, 30(2), pp.780-817.
Blackburn, R.A., Hart, M. and Wainwright, T., 2013. Small business performance: business,
strategy and owner-manager characteristics. Journal of small business and enterprise
development, 20(1), pp.8-27.
Haag, A.B., 2013. Writing a successful business plan: An overview. Workplace health &
safety, 61(1), pp.19-29.
Hiduke, G. and Ryan, J.D., 2013. Small business: an entrepreneur's business plan. Cengage
Learning.
Hill, T., 2017. Manufacturing strategy: the strategic management of the manufacturing
function. Macmillan International Higher Education.
Jones, L.M. and Allen, P.S., 2014. Beginnings of interior environments. Pearson.
Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
Empirical insights into the development, leadership and implementation of responsible
business strategy. Journal of Business Ethics, 122(1), pp.145-165.
Leschke, J., 2013. Business model mapping: Application and experience in an introduction to
entrepreneurship course. Journal of entrepreneurship education, 16, p.77.
McKenzie, D., 2015. Identifying and spurring high-growth entrepreneurship: experimental
evidence from a business plan competition. The World Bank.
Rackley, J., 2015. Return on Investment. In Marketing Analytics Roadmap (pp. 71-85).
Apress, Berkeley, CA.

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
Scarborough, N.M., 2016. Essentials of entrepreneurship and small business management.
Pearson.
Sharda, R., Delen, D. and Turban, E., 2013. Business intelligence: a managerial perspective
on analytics. Prentice Hall Press.
Titman, S., Keown, A. J., and Martin, J. D., 2017. Financial management: Principles and
applications. Pearson.
Verbeke, A., 2013. International business strategy. Cambridge University Press.

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Appendices
Income statement –
Break – even point –

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ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT

Running head: ADVANCE MANAGEMENT ACCOUNTING AND PERFORMANCE
MANAGEMENT
Cash flow statement –