Managerial Accounting: Analysis of On the Beach Manufacturers

This assignment discusses about the forecasted result of the company On the Beach Manufacturers. It includes an overview of expected results, analysis of contribution margin of the products, analysis of the cash position of the business, analysis and predictions for 2020.

MANAGERIAL ACCOUNTING

Contents
Introduction................................................................................................................................3
Overview of expected results (2019).........................................................................................4
Analysis of contribution margin of the products........................................................................7
Analysis of the cash position of the business.............................................................................9
Analysis and predictions for 2020............................................................................................11
Conclusion................................................................................................................................13
Bibliography.............................................................................................................................14

Introduction
The management must prepare budgets and manage the plans efficiently in order to carry out
the production smoothly. We have been provided with the information of “On the beach”
manufacturers. The data provided to us has been used to prepare different kind of budgets.
Budgeting forms a part of the financial planning. This tool of financial planning is considered
to be very important as it helps to achieve the objectives of the company. Budgeting is
considered to be a complex process because it requires lots of estimations on the basis of the
available information (Adelaja, 2015). This assignment discusses about the forecasted result
of the company.

Overview of expected results (2019)
The data which has been provided to us relating to the company has been used to calculate
the expected results for the next year. The management needs to forecast the number of units
it expects to sell in the camping year for the different products in which it deals (Atkinson,
2012).
The graph provided below shows the number of units of different products that are expected
to be sold in 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
500
1,000
1,500
2,000
Chart Title
One-piece Board shorts Towels Beach Bags
We can observe with the help of the given graph that the sales will be maximum in the month
of January but it is gradually expected to decline in the following months.
All the function like purchase, production, distribution etc has to be planned according to the
sales that are expected to happen. A company will purchase materials or hire labour based on
the number of units it has to produce (Berry, 2009).
The inventory level is to be maintained at a level of 50% of what is required in the next
month. This has been planned by the management so that they can calculate the number of
units that they should produce in the future periods.

Jan/19
Mar/19
May/19
Jul/19
Sep/19
Nov/19
0
1000
2000
3000
4000
Total Units Produced
Total Units Produced
The machine hour availability and labour along with the purchase of raw material has been
planned base on this data which has been provided. It is important for the management to
make optimum utilisation of the resource available to them (Bierman & Smidt, 2010).
In order to determine the total cost of production, the management has also estimated the
operating costs and manufacturing costs that would be incurred. After taking into
consideration all the costs and revenue data which has been forecasted the company is able to
draw a conclusion about the profitability (Boyd, 2013). The profits that are expected to be
earned by the company are as follows:
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

We can conclude from the above data that the company expects to generate $0.4 millions of
profit in 2019.

Analysis of contribution margin of the products
There are four products that are manufactured by the company. They are- one piece, towels,
beach bags and board shots. The customers of this company are majorly attracted towards
one piece. The contribution of all the products has been calculated separately in order to
ascertain the profitability (Datar , 2015) .
Contribution is calculated by subtracting variable cost from sales. However, in order to
determine the breakeven point (i.e. the point at which the company will have no profit/loss)
contribution per unit has to be divided by the total fixed cost incurred. At the breakeven point
the revenue is equal to the cost that has been incurred and that is why there is no profit or loss
(Datar, 2016).
The calculation of contribution for all the products separately is shown in the table below:
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 above calculation, we can see that the product which has the highest contribution
value is one piece swimsuits. This indicated that the company should focus more on
producing its main product. Apart from one piece, it has also been observed that the towels
and board shorts has a positive as well as sufficient contribution which will help to increase
the profitability of the company. The above calculation also shows that the variable cost
exceeds the sales in case of beach bags and therefore the contribution has been negative. The
production of beach bags should be stopped by the management so that the company does not
incur losses (Dayananda, Irons, Harrison, Herbohn, & Rowland, 2008).
Hence, we can conclude that the calculation of contribution helps the management to
ascertain and analyse the profitability level of each product that it manufactures. It also helps
tha management to improve its pricing policy and control costs.

Analysis of the cash position of the business
Cash is required by every business to carry out its day to day operation smoothly. Cash is
considered to a liquid asset of the company which helps the company to meet its short term
obligations. If the company does not maintain adequate levels of cash then the company
might suffer (Holtzman, 2013). This may have a direct negative impact on the productivity
and profitability of the company. So, it is important for every company to maintain its cash
position in the most efficient manner so that there is no situation of cash crunch.
The management of the company also plans for the cash cycle while preparing a budget. Cash
cycle is the total time period in which the cash is received from the debtors and paid to the
creditors. The cash cycle helps the management in preparing the cash budget accordingly.
The expected cash balances for 2019 are shown below:
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

January
February
March
April
May
June
July
August
September
October
November
December
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Cash Balance
Total cash Payments
Total cash Receipts
We can observe in the graph provided above the level of cash receipts as well as payments
and the balance expected in the year 2019. From the above graph we can see that there is an
increase in the cash balance at the year end. The reason behind this is an increase in the
accumulated profits. Initially, there was a fall in the cash payments and cash receipts but it
recovered gradually.
If the company maintains an appropriate level of cash balance at the end of every month then
the company will never face a situation of cash crunch. The company should not keep to
much cash available as it will lead to loss of interest on that money. The management must
invest the idle cash and try to increase the value of that money.

Analysis and predictions for 2020.
The budgets that are prepared must rely on actual market study and facts. It is important for
the management to know about the demand of a particular product in the market so that
production can be done accordingly (IBIS World). Therefore, the management has to carry
out an in depth customer research and market study. In order to estimate the sales of the year
2020, the company has used the data that has been collected by IBIS world. According to the
estimated data it is expected that there will be a growth of 0.8% in the retail industry. This
rate has also been used to estimate the sales of “ On the beach” sales figure.
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
In the above table, the growth of the business in the retail industry is taken as 0.8% for the
coming years (Siciliano, 2015). The increase in revenue is expected to be 1.2%. However, the
sales price gas also been estimated accordingly.
One-piece swimsuits Board short Towel Beach Bag
Selling Price 101.20 80.96 50.60 45.54

Based on the information collected by the IBIS world, we have observed that the revenue is
expected to increase by 1.2%. There should be proper evidence available for the projections
that are made by the management (Warren, 2017).

Conclusion
In this assignment we have learnt that there are various tools that are used by the management
of the company in order to improve their future performance. These tools help the company
to make a financial plan and make a proper execution of these plans. Any variances found
between the actual data and estimated data should be adjusted and corrective measures should
be taken. The profitability of the company for the next year seems to be favourable. The plan
created by the management should be followed with great efficiency so that the company is
able to generate higher returns.

Bibliography
Adelaja, T. (2015). Capital Budgeting: Investment Appraisal Techniques Under Certainty.
Chicago: CreateSpace Independent Publishing Platform .
Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.
Bierman, H., & Smidt, S. (2010). The Capital Budgeting Decision. Boston: Routledge.
Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.
Datar, M. S. (2015). Cost accounting. Boston: Pearson.
Datar, S. (2016). Horngren's Cost Accounting: A Managerial Emphasis. Hoboken: Wiley.
Dayananda, D., Irons, R., Harrison, S., Herbohn, J., & Rowland, P. (2008). Capital
Budgeting: Financial Appraisal of Investment Projects. Cambridge: Cambridge University
Press.
Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.
IBIS World. (n.d.). Industry Trends. Retrieved from ibisworld.com:
https://www.ibisworld.com/industry-trends/market-research-reports/retail-trade/
Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.
Warren, C. S. (2017). Accounting . [S.I.]: South-Western College Pub.