The study sheds light on the budget planning for the Sunny days. This has provided idea on the cost allocation in different overheads of the company’s activity. The study identifies the revenue through the sales forecasting and the cost of ending inventory has also been identified.
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Running head: ADVANCED MANAGEMENT ACCOUNTING Advanced management accounting Name of the student: Name of the University: Author’s Note:
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1 ADVANCED MANAGEMENT ACCOUNTING Executive summary The study sheds light on the budget planning for the Sunny days. This has provided idea on the cost allocation in different overheads of the company’s activity. The study identifies the revenue through the sales forecasting and the cost of ending inventory has also been identified. The report explains the analysis of target price set by the company and further the cost efficiency has been explained through analysing the impact of supply chain management on the target profit margin. The study has explained impact of value chain in creating value through the different activities and to the customers. The study undertakes a cost based pricing strategy where the difference between market based pricing strategy and cost based pricing strategy has been evaluated through understanding their advantage and disadvantages. On the final stage the study develops a recommendation on the pricing strategy and identifies the final price of the 4 product of the company.
2 ADVANCED MANAGEMENT ACCOUNTING Table of Contents Introduction................................................................................................................................3 Overview....................................................................................................................................3 Target price analysis..................................................................................................................4 Supply chain analysis.................................................................................................................5 Value chain analysis...................................................................................................................5 Pricing analysis..........................................................................................................................6 Final price recommendation.......................................................................................................7 Conclusion..................................................................................................................................7 References..................................................................................................................................9 Appendices...............................................................................................................................11
3 ADVANCED MANAGEMENT ACCOUNTING Introduction Developing a budget planning helps in identifying the required cost for the project. The budgeting has been done either at time of expansion or at the time of forming a new business opportunity for the new business entity or set up. However the budget planning includes the identification of the expenditures and the cost associated with the project that are going to be undertaken by the project owner. Hence for a better explanation the study explains the required budget for depending on the allocation into the various overhead of the company’s product. Further the study identifies the target price through analysing the target profit margin. The study identifies the opportunity for improvement the supply chain management process which would help in achieving cost efficiency through maintain a required profit margin for the company. The study also explains the different pricing strategy for their different products and generates a recommendation of setting a pricing strategy depending different cost method. With understanding different pricing strategy the study also develops a recommendation on the final pricing for the company’s different products which would help the company to maximise the profit at the end. Overview The project represents a budget allocation into different segment of the four categories of product that are manufactured by the company named Sunny days. The” Sunny days” is involved in the retail service and manufacturing swimming product. The overview of the company’sperformancedependsontheexpectedprofitearningwheretheexpected expenditures, expected sales and expected unit production has been analysed. The allocation of the production budget has been done depending on the cost allocation into different overhead of the company. Providing the over view of the unit required this has been recognised that the company aims to have a total production unit of 12400 in one year for the “One piece”. The budget planning also estimates a total production unit of 11320 for the
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4 ADVANCED MANAGEMENT ACCOUNTING board shorts in the coming period. The production unit also estimated 2620 units of Towel in total at the estimated period. The total production unit of Umbrella estimated at 1570 in total. This also identifies a total 25078 machine hour required for the production. The budgets planning estimates a total budget sales volume of 12500 unit for one piece product. This generates a total sales of $1250000. Fir the board short the budget sales volume has been estimated at 11420 units in total and this generates a forecasted sales of $913600.For the Towel the estimated forecasted total sales unit is 2600 and this estimates a total sales of $130000. For the umbrella the total budgeted sales unit has been estimated at 1560 at the end of the year and this has a forecasted budgeted sales for beach bag at $70200. However, at the forecasted period the total cash collection has been estimated at $2399450. The total accounts payable has been estimated at 113955 for the company. Further the total direct labour used for each of the product has been estimated at $702182. A manufacturing budget overhead has also been calculated which has produced a total variable cost at $75234 and fixed cost overheadat$138800(Oluwagbemiga,OlugbengaandZaccheaus2014).Themonthly operating cost budget reflects an average operating expenses per month at $7112. The ending inventory has been estimated at 800 units for One piece, 700 units for Board shorts, 220 for Towel and 110 for Umbrella, however the total cost has been estimated at $120394 which has been anticipated as the budgeted end inventory cost for the fore casted period. The estimated budgeted sales has identified a cost of sales amounting $1803669 and this can produce a gross profit margin at $560131.the net profit has been estimated after incurring all the operating expenses is at $474790 for the forecasted period. At the end the monthly cash budget represents cash balance of $526297 at the end of the year. However the total payment has been estimated at $1905403.
5 ADVANCED MANAGEMENT ACCOUNTING Target price analysis The target pricing has been made depending on profitability in each category of the product. The target sales price has been set at $100 for the One piece. The target selling price set for the broad shorts is 80 per unit. For the Towel the target price has been set at 50 per unit and for the umbrella the target selling price per unit has been set at $45. These pricing strategy has been done through following cost based pricing strategy where the company has emphasised on maximise profit through reducing the cost of product (Hu, Li and Shi 2015). Supply chain analysis The target profit margin has been represented through the net profit which is estimated at 474790 (474790/2363800*100 = 20.1%). This can be achieved through bringing efficiency into the production and management system. Reducing the operating expense which also includes the supply chain management helps in enhancing cost benefit. Brining technology into the supply chain management system this reduces the cost of delivery (Govindanet al.,2014). Along with that an integration of strategic management system into the supply chain process helps in reducing the cost of delivery. An adoption of the Automating processes in the warehouse isn’t part of some fad or shady trend. It can actually help the company to accomplish their goal of reducing supply chain costs (Joshi, Yesha and Finin 2014). Introducing JIT inventory management system so that the company can order as on need basis. This would reduce the carrying fee. Value chain analysis The value chain analysis helps in identifying those activities which does not add value to the organizational activity. Value chain analysis collects the activities that are performed by the company to create value for the customers (Mohajerietal.,2014). Using the value chain analysis the company identifies the internal activities that can be removed or added to create value into the business process. This has been recognized that the primary activities of
6 ADVANCED MANAGEMENT ACCOUNTING the value chain system adds value in the production process. With the help of bringing efficiency in the operational process and inbound logistic process this adds value into the primary activity for the company. The effective marketing strategy helps the company to add value through generating more sales. However the supportive activities also adds value into the business process through creating an effective human resource management process. The effectiveR&Ddepartmentalsoaddsvaluethroughthesupportiveactivityintothe company’s organizational development. The efficient procurement strategy through using high technology also adds value in reducing procurement cost into the production process (Montgomery and Oladapo 2014). While the primary activities add value into the company’s internalactivitiesandthesupportiveactivitieshelpsindevelopmentoftheoverall management system and adds value towards the management system (Montgomery and Oladapo 2014). Example: The Company aims to reduce cost associated with the company’s primary activity, the company would try to control the operational expenses and inbound logistic expenses. Through this the company can reduce their cost of product and can maximise the profitability (Ballet al.,2015). Pricing analysis The company has set their product price following the cost based pricing strategy. Following the cost based pricing strategy, the company has able to reduce their cost so that the competitive advantage can be gathered. However the market based pricing also gives a competitive advantage through setting a competitive price of the product but after setting the price on market based the owner does not hold any power to set the price (Niyatoet al., 2016). This means the price gets manipulated automatically depending on the market or on the competitors’ activity, whereas the cost based pricing helps the company to identify the cost reducing opportunity which gives the company a scope to reduce the cost of production
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7 ADVANCED MANAGEMENT ACCOUNTING through controlling production cost and operating cost. This provides an opportunity to enhance profitability. Hence this has been recommended that the company should set their price following the cost based pricing strategy. This would help the company to increase profitability through controlling the cost of good and keeps the pricing power into the owner’s hand (Kaddouraet al.,2015). Final price recommendation With the advantage of gaining more profit the company sets their product price using cost based strategy. However, the product’s final price has been set at cost price which has been represented as market price or the sales price of the product. This has enabled the company to set the market price or the sale price of the One piece at $100 per unit, $80 per unit for the Board short, $50 per unit for Towel and $40 per unit for the Umbrella. Hence the final price has been set based on the forecasted market price which has been represented in the sales forecasting of the budgeting. Conclusion The study has provided idea on the budget planning where the sales forecasting has been done through assuming product’s future sales price. This has been identifies as the products final price in the forecasted period. The study provides idea on the target pricing through whichtheprofithasbeenmaximised.Howeverthestudyalsoincludesthepricing compression using cost based pricing strategy and market based pricing strategy. The report explains the effective supply chain management strategy which would help in reducing the cost of the product price and enables the company to maximise the profitability.The study also explains the effectiveness of the primary and secondary activity in adding value through using porter’s value chain analysis model. Finally, the report develops a recommendation over the company’s pricing strategy which helped the company to set a final price and achieve profitability through reducing cost.
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9 ADVANCED MANAGEMENT ACCOUNTING References Ball,R.,Gerakos,J.,Linnainmaa,J.T.andNikolaev,V.V.,2015.Deflating profitability.Journal of Financial Economics,117(2), pp.225-248. Govindan, K., Kaliyan, M., Kannan, D. and Haq, A.N., 2014. Barriers analysis for green supply chain management implementation in Indian industries using analytic hierarchy process.International Journal of Production Economics,147, pp.555-568. Hu, M., Li, X. and Shi, M., 2015. Product and pricing decisions in crowdfunding.Marketing Science,34(3), pp.331-345. Joshi, K.P., Yesha, Y. and Finin, T., 2014. Automating cloud services life cycle through semantictechnologies.IEEE Transactions on Services Computing,7(1), pp.109-122. Kaddoura, I., Kickhöfer, B., Neumann, A. and Tirachini, A., 2015. Optimal public transport pricing:Towardsanagent-basedmarginalsocialcostapproach.JournalofTransport Economics and Policy (JTEP),49(2), pp.200-218. Mohajeri, B., Nyberg, T., Karjalainen, J., Tukiainen, T., Nelson, M., Shang, X. and Xiong, G., 2014, October. The impact of social manufacturing on the value chain model in the apparelindustry.InProceedingsof2014IEEEInternationalConferenceonService Operations and Logistics, and Informatics(pp. 378-381). Ieee. Montgomery, E.G. and Oladapo, V., 2014. Talent management vulnerability in global healthcare value chains: A general systems theory perspective.Journal of Business Studies Quarterly,5(4), p.173. Montgomery, E.G. and Oladapo, V., 2014. Talent management vulnerability in global healthcare value chains: A general systems theory perspective.Journal of Business Studies Quarterly,5(4), p.173.
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10 ADVANCED MANAGEMENT ACCOUNTING Niyato, D., Hoang, D.T., Luong, N.C., Wang, P., Kim, D.I. and Han, Z., 2016. Smart data pricing models for the internet of things: a bundling strategy approach.IEEE Network,30(2), pp.18-25. Oluwagbemiga, O.E., Olugbenga, O.M. and Zaccheaus, S.A., 2014. Cost management practices and firm’s performance of manufacturing organizations.International Journal of Economics and Finance,6(6), p.234.
11 ADVANCED MANAGEMENT ACCOUNTING Appendices Appendix 1: Figure 1: Final price for 4 products of Sunny days Appendix 2 January February March April May June July August September October November December $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $337,000 $251,100$243,000 $192,400 $94,700$83,800$83,800$97,800 $243,000$231,100$231,100 $275,000 Forecasted Revenue Series1 Figure 2: Total forecasted revenue