MANAGERIAL ACCOUNTING.

Running head: MANAGERIAL ACCOUNTING
Managerial accounting
Name of the student
Name of the university
Student ID
Author note

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Executive summary
Aim of the report is to prepare and analyse highlight the budget of Surf n sea for the year
2020. The report will provide summary in context organisational performance for particular
period. Surf n sea is engaged in producing swimwear as well as accessories for men and
women and mainly deals with 4 products including one piece, beach bags, board short and
towels. Based on the budget the report will analyse the contribution margin and cash position
of the entity.

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Table of Contents
Introduction................................................................................................................................3
Overview of expected result.......................................................................................................3
Analysis of contribution margin.................................................................................................4
Recommendation on cash position.............................................................................................6
Analysing present market scenario............................................................................................7
Conclusion and recommendation...............................................................................................9
Reference..................................................................................................................................10

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Introduction
Surf n sea deals in producing swimwear as well as accessories for men and women.
They have started their operation in Kirra, where they took rented premises to establish the
factory, which is divided into 3 sectors namely manufacturing, retail and storage. The
company mainly focuses on producing one-piece swimsuits for the women, beach towels,
board shorts for the men and beach umbrella. The main objective of the report is highlighting
the budget of Surf n sea, prepared in excel sheet for the year 2020. Therefore, the report
provides a summary relating to the performance of the organisation relating to a particular
period.
Overview of expected result
According to the financial report it is identified that budgeted sale for the concerned
period will be 12500 units priced at $100 per unit. Therefore, the total revenue derived from
sale of one-piece swimsuits for women amount to $12,50,000. On the other hand, sale of
board shorts will provide $913,600 revenue in the budgeted period. It is assumed that 1560
units of towel will be produced and sold during the budgeted period at the rate of $50 per unit
amount to $78,000. During the budgeted period Beach umbrella will make revenues of
$117,000 where the budgeted output will be 2600 units and budgeted price $40 per unit
(Gitman, Juchau & Flanagan, 2015). As per the preference of Surf n sea 50 percent of the
total budgeted sales will be shown as closing stock of finished inventory. After considering
the budgeted information, production of one piece swimsuit requires 7750 units of raw
materials, 11320 units of raw material is required for producing board shorts for men ,
production of towel and umbrella requires 1950 units and 2620 units of raw materials
respectively during the budgeted period. As per the budget machine hours needed for
producing one swimsuit will be 1 hour, 0.75 hour requires for one board shorts, 0.4 hours for

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producing one towel and 0.6 machine hours required for producing one beach umbrella
(Tekin & Konina 2017, Pp. 269-278). The budget of Surf n sea also states the requirement of
direct material, which contain fabric, trim and elastic for producing one-piece swimsuit. The
total budgeted cost of making one-piece and board shorts $34.25. Further, the company’s
budgeted cost will be $31.50 for producing towels and $26.50 for producing beach umbrella.
Under variable manufacturing cost, there are costs for direct material, direct labour and
indirect labour. The fixed manufacturing cost comprises of production that includes cost of
utilities amounting to $54000, rent amounting to $67,200 and the cost of repairs and
maintenance that to be paid in each quarter by the company amounting to $2500. In addition
to this, the cost of operation consists of utilities amounting to $3, 00,000 and rent amounting
to $16800. Other expenses will reflect the amount of interest will be paid by the company on
loans and advances at the rate of 8% per annum and the amount of depreciation will be paid
of $10000 on equipment. According to the income statement of Surf and sea it is found that,
there is $911,361gross profit margin after subtracting the cost of goods sold amounting to
$14,47,239 from revenue earned from sales $23,58,600. Therefore, the value of net income of
the company is $815,161 after subtracting all the expenses of $96,200 from the marginal
gross profit of the company (Tekin & Konina 2017, Pp. 269-278).
Analysis for contribution margin
The term contribution margin is the difference between cost of production and
variable cost of the product. Contribution margin is nothing but the profit earned per unit on
sale of goods by the company. It is one of the most useful methods of pricing the product of a
company. Therefore, contribution margin refers to the estimation of profit from each unit of
product after excluding the variable cost from sales revenue of a particular period (Dasari,
Jigeesh & Prabhukumar 2015, p. 32). Contribution margin assists to detect the product that

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increases the variable cost in comparison with those products that ensures higher profitability
to the company. The remaining amount of contribution is used mitigate the fixed expenses
associated with the product. Thus, if a company fails to maintain adequate of amount of
contribution margin the organisation will never meet its fixed obligations properly.
One-piece Board shorts Towels Beach Bags-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00% 36.51%
28.46%
9.60%
-0.70%
Contribution margin
The above table and graphical representation provides a brief idea on revenue earned
and variable cost incurred by Surf n sea company. According to the diagram and the table the
entire amount of revenue earned from sales are $12,50,000 and the total variable cost of
$793,625. Therefore, the percentage of contribution margin is 36.51. Further, the total
revenue earned from the sale of board shorts amounting to $913,600 and the total variable
cost relating to the production of board shorts amounting to $633,595 (Weygandt, Kimmel &

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Kieso, 2015). Therefore, the percentage of contribution margin is 28.64. On the other hand,
the diagram and table highlight the amount of profit earned from sale of towel is $ 78,000
although the variable cost incurred is $70,512 and the percentage of contribution margin 9.60.
At the same time, the above picture and the table represents an increase in variable cost as
compared to revenue earned from sales. Therefore, the actual amount of revenue earned from
sales is equivalent to $117,000 and the total variable cost of a period amounting to $ 117,820
that denotes negative margin of contribution of 0.70%. Although, entire contribution margin
of the firm is 30.66%, there is a negative margin in producing the beach umbrella. Hence, it
can be said that, there is a chance, that the negative contribution margin of one product will
affect the profitability of other product (Weygandt, Kimmel & Kieso, 2015). As per the
above statement, one-piece swimsuit is one of the most profitable products among all the
other products of Surf n sea company that possess 36.51%of contribution margin.
Recommendation for cash position
Opening balance of cash for Surf n Sea was amounted to $ 42,250. The entity receives
cash only through selling of its 4 products. On the other hand it makes payment for
purchasing direct material and paying direct labour. Apart from that it makes payment for
variable overheads that include indirect labour, indirect material as well as fixed overhead
that includes rent, salary of factory supervisor, insurance, utilities and loan interests. In
addition, other operating expenses those are paid through cash are insurance, utilities, general
office expenses, administration staff wages and rent (Hill, 2017). As on 1st December 2020
expected closing cash balance of the entity is $ 904,425. However, from the calculation it is
recognised that the product ‘beach bag’ is generating loss and it is not possible for the
product to cover up expenses from the sales revenue generated by the same. Hence, it is
suggested that to enhance the cash position it shall discard beach bags from its product line

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and the same resources can be used for one piece as that is generating highest profit margin
(Wijayasundara et al. 2016, Pp.187-201).
Analysing present market scenario
(Source: Ibisworld.com, 2019)
Different factors those may have impact on Australian clothing as well as accessory
retail industry are the factors those falls outside the purview of small companies as well their
competitors. As owners of the business have lower control over external factors, those factors
may have large impact on business. Further, tightening of labour market is expected to
increase wages of labours. Apart from that, moderate inflation pressures are likely to improve
the spending of the consumers. In accordance with the data of IBISworld for past 5 years, the
apparel manufacturing industry on global aspect has increased by 4.6% and reached revenue
of $ 658 million in 2018. In same period, business concerns increased by 3.6% whereas
employees number increased by 2.2%. Hence, the product price must be increased to enhance
the level of profits (Ibisworld.com, 2019)

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(Source: Abs.gov.au 2019).
In accordance with the report issued by Australian Bureau of Statistics regarding
present price, estimated trend for Australian turnover enhanced by 0.1% in July 2019, 0.2%
increase in June 2019 and 0.2% in May 2019 (Abs.gov.au, 2019)
Conclusion and recommendation
It is established from the above discussion that the entity will earn positive
contribution margin from towels, board shorts and one piece. However, beach bag is a loss
generating product and to enhance the profitability of the entity the same needs to be
discarded from product line. Though Australian economy is providing positive outlook,
investors are required to consider big picture regarding Australian economy and issues those
have impact on the retail sector. Hence, it can be recommended that to prepare the budget for
2021, the entity shall take into consideration the economic factors those may impact the
business.

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Reference
Abs.gov.au. 2019, 8501.0 - Retail Trade, Australia, Jul 2019. [online] viewed 18 Sep. 2019
<https://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/8501.0Main%20Features2Jul
%202019?opendocument&tabname=Summary&prodno=8501.0&issue=Jul
%202019&num=&view=>.
Dasari, S., Jigeesh, N and Prabhukumar, A. (2015). Analysis of project success issues: The
case of a manufacturing SME. IUP Journal of Operations Management, 14(1), p.32.
Gitman, J, Juchau, R. and Flanagan, J. (2015). Principles of managerial finance.Pearson
Higher Education AU.
Hill, T 2017. Manufacturing strategy: the strategic management of the manufacturing
function. Macmillan International Higher Education.
Ibisworld.com., 2019. Global Apparel Manufacturing. Industry Market Research Reports,
Trends, Statistics, Data, Forecasts . [online] viewed 18 Sep. 2019
<https://www.ibisworld.com/industry-trends/global-industry-reports/manufacturing/apparel-
manufacturing.html>
Tekin, V and Konina, V. (2017), December. The Role of Information and Communication
Technologies in the Process of Strategic Management of Entrepreneurial Structures
Activities: The Budget and Financial Aspect. In Perspectives on the use of New Information
and Communication Technology (ICT) in the Modern Economy, pp. 269-8
Weygandt, J, Kimmel, D and Kieso, E. (2015). Financial & managerial accounting.John
Wiley & Sons.

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Wijayasundara, M, Mendis, P, Zhang, L and Sofi, M. (2016). Financial assessment of
manufacturing recycled aggregate concrete in ready-mix concrete plants. Resources,
Conservation and Recycling, 109, pp.187-201.