Management Accounting (ACC00146 )

MANAGEMENT ACCOUNTING

Contents
Introduction......................................................................................................................................3
Overview of the expected results in 2019........................................................................................4
Analysis of contribution margin of the products.............................................................................7
Analysis of cash position of the business........................................................................................8
Analysis and predictions of 2020..................................................................................................10
Conclusion.....................................................................................................................................11
References:....................................................................................................................................12

Introduction
The management of the company prepare different kind of budgets in order to plan its
expenditure. If the expenditures are properly planned, then the production facility can be carried
out smoothly and efficiently. The budgeted data of “on the beach” manufacturers has been used
for this assignment.. The budgets that have been prepared in this report are on the basis of these
projected data. Budgeting is a component of financial planning which helps the management in
achieving its objectives. The preparation of budgets is a complex task which includes collection
of important information and then the application of such data in order to obtain useful
information. The projected result of the manufacturers is shown in this report.

Overview of the expected results in 2019.
The projected data from various segments has been taken to calculate the results of the next year.
To begin with its financial planning, the company has first estimated the number of units that are
expected to be sold in the upcoming year.
The graph provided below shows the number of units that the company expects to sell next year
(2019).
Jan/19
Feb/19
Mar/19
Apr/19
May/19
Jun/19
Jul/19
Aug/19
Sep/19
Oct/19
Nov/19
Dec/19
Jan/20
Feb/20
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
One-piece
Board shorts
Towels
Beach Bags
It is clearly visible in the graph provided above that the demand for goods that has to be sold will
be higher in January but it is expected to decline in the following months. Taking into
consideration the expected sales volume, all the other function such as purchase, distribution and
production has to be planned. The estimation of production units will have a direct impact on the
purchase of raw material and hiring of labour (Atkinson, 2012).
It has been planned by the management that the inventory level maintained will be equal to 50%
of the next month’s inventory demand. On the basis of this plan by the management, the
production units are calculated.

Jan/19
Mar/19
May/19
Jul/19
Sep/19
Nov/19
0
1000
2000
3000
4000
Total Units Produced
Total Units Produced
On the basis of the units that are expected to be produced, the management has estimated about
the demand of raw material and availability of machine hours and labour hours. It is important
for the management to utilise its resources in an optimum manner.
In order to determine the total cost that will be incurred in production; the management has
estimated manufacturing costs and other operating costs. After the estimation of all revenue and
cost figures the management of the company has come up with an estimated profits\ of the
company. The expected profits of the company are shown in the table provided below:
Budgeted Income Statement for the year ended 31
December 2019
Sales $ 23,58,600
Less cost of goods sold $ 17,91,730
Gross margin $ 5,66,870
Less Operating expenses
Utilities $ 600
Insurance $ 6,000
Administrative Wages $ 30,000
General Office Expenses $ 18,000

Rent $ 16,800
Interest $ 14,800
Total Operating Expenses $ 86,200
Net Income $ 4,80,670
Therefore, the management has come up with an estimation of profits of $0.4 million in the year
2019.

Analysis of contribution margin of the products
“on the beach” manufacturers is engaged in the production of four different products. They are-
one piece, board shorts, towels and beach bags. The major attraction of the customers is towards
one piece. In order to evaluate the profits of each product, the contribution of each product has
been calculated.
Contribution can be calculated by subtracting variable cost from sales. In order to calculate the
breakeven point, the contribution per unit is divided by the total fixed costs. Breakeven point is
the point at which the revenue is equal to costs, there is no profit / loss at the breakeven point.
The table provided below shows the contribution of each product:
Particulars One-piece
swimsuits
Board
short Towel Beach
Bag
Sales 100.00 80.00 50.00 45.00
Less: Variable Cost
Direct Materials 34.25 34.25 31.50 26.50
Direct Labour 28.00 21.00 11.20 16.80
Manufacturing Overhead (Variable) 3.00 2.25 1.20 1.80
Contribution 34.75 22.50 6.10 -0.10
One-piece
swimsuits Board
short Towel Beach Bag-5.00
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
Contribution
Contribution

From the table provided above, we can conclude that one piece swimsuits has the highest
contribution and the focus of the company should be on the production of its main product. The
contribution of board shorts and towels is positive and sufficient. So, it is expected to derive
profits. The contribution earned through beach bags are negative which makes it clear that the
cost incurred in production will be higher than the revenue that will be generated. If the company
wants to continue the production of beach bags then it must increase its selling price.
Analysis of cash position of the business
Cash is a liquid asset of the company which is considered very important to carry out daily
activities. If the company does not maintain adequate liquidity levels then it will become difficult
to carry out operation smoothly and efficiently. A cash crunch is considered to be very hazardous
for the company’s operations. If the operations of the company are affected then it will
ultimately affect the profitability of the business (Berry, 2009). So, it is important for the
management of the company to plan and maintain its liquid assets.
In order to prepare a budget the management has to prepare for a cash cycle. Cash cycle can be
defined as the time period cash is expected to be collected from debtors and dues are paid to the
creditors. With the help of this cash cycle, the management prepares for a cash budget which
helps the management to know the cash position and whether it will be able to meet expenses or
not.
The expected cash balance for 2019 of the company are as follows:
Total cash Receipts
Total cash
Payments Cash Balance
January 3,20,980 2,30,768 1,32,462
February 2,77,860 1,91,538 2,18,784
March 2,45,060 1,68,118 2,95,725
April 2,08,364 1,18,686 3,85,403
May 1,25,864 83,680 4,27,587
June 87,256 79,755 4,35,088

July 83,800 87,542 4,31,346
August 93,184 1,37,354 3,87,176
September 1,96,132 1,81,659 4,01,649
October 2,34,340 1,82,961 4,53,028
November 2,30,500 1,97,816 4,85,713
December 2,60,080 2,22,836 5,22,956
The level of cash receipts, cash payments and the balance at the end of year 2019 is shown in the
graph provided above. It is observed that the cash balance has increased towards the end. This
rise in cash balance has been seen due to accumulation of profits over the years. We can also
observe that there was a decrease in cash receipts and payments in the starting but gradually it
started recovering.
It is expected that the company will have sufficient cash and will not proper level of cash at the
end of each period. It is important for the company to keep a track and withdraw cash whenever
there is a cash excess. If the company has excess cash present then it is losing interest on such
idle cash.

Analysis and predictions of 2020
The budget should be prepared using the market data and on the basis of actual facts. It is
important for the management to estimate the demand of the product for the upcoming years.
This activity relates to customer research and thorough market study. The data used to prepare
budgets has been taken from IBIS world in order to estimate the sales information for the year
2020. The company has estimated of growth 0.8% in the business of retail industry. This rate has
been used to calculate the sales for 2020 of “on the beach” manufactures.
Expected demand for 2020
Sales One-piece Board
shorts Towels Beach Bags
Jan-20 1,814 1,613 202 403
Feb-20 1,411 1,109 181 302
Mar-20 1,310 1,169 161 262
Apr-20 1,008 1,008 121 141
May-
20
403 605 60 81
Jun-20 403 504 40 40
Jul-20 403 504 40 40
Aug-20 605 403 40 81
Sep-20 1,310 1,169 161 262
Oct-20 1,210 1,109 181 302
Nov-20 1,210 1,109 181 302
Dec-20 1,512 1,210 202 403

Hence, the growth for the business in retail industry is 0.8& which is clearly visible in the table
provided above. IBIS world has estimated that the retail industry will show a growth of 1.2% in
the revenues. The projected selling price of these products is shown in the table provided below:
One-piece swimsuits Board short Towel Beach Bag
Selling Price 101.20 80.96 50.60 45.54
Therefore, on the basis of data collected by IBIS world, we can observe that the revenue is
expected to rise by 1.2% in the retail industry. These estimations that are used by the
management should be calculated using statistical tools and with the help of valid evidence and
study. The management must prepare budgets on the basis of these information.

Conclusion
There are various budgetary tools that are used for the of analysis and for creating a financial
plan of the coming years. It is important for the management to take steps carefully while
implementing such financial plans. The variances that can occur and which can have an effect on
the business returns must be incorporated. According to the analysis that has been carried out,
the management expects to derive sufficient profits in the coming years. In order to maximise the
returns, it is important to conduct business plans smoothly.

References:
Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.