NAIT ACCT 1116: Managerial Accounting Report on Shoe Business

This report provides a comprehensive managerial accounting analysis of a proposed running shoe business, addressing key aspects such as cost estimation, cost classification, and break-even analysis. The report begins with an introduction to the business, including its industry, competitors, and target market. It then outlines the materials and strategy for production, followed by a detailed cost estimation, including monthly and yearly figures for various components like materials, labor, and overhead. The report classifies costs as fixed or variable and calculates the per-unit cost of production. Furthermore, it determines the break-even point in both units and dollars. The analysis includes references to relevant academic literature supporting the financial concepts discussed. This assignment, submitted to Desklib, serves as a valuable resource for students studying managerial accounting and business finance, demonstrating the application of accounting principles in a practical business context.

Running head: ACCOUNTING
Accounting
Name of the student
Name of the university
Student ID
Author note
Table of Contents

1
Accounting
Introduction......................................................................................................................................2
Cost..................................................................................................................................................4
Cost estimation................................................................................................................................5
Classification of cost........................................................................................................................5
Break-even analysis.........................................................................................................................6
Reference.........................................................................................................................................7

2
Accounting
Introduction
In the recent times, every person specially young is motivated to go gym. They are much
more motivated to be fit themselves. Keeping in mind, I have decided to produce a light weight
running shoe or sports shoe. The shoe business involves of a multitude manufactures.
Wholesalers and retailers. The major wholesalers in the US market are the proprietors of a brand
name and primarily source their shoes from the independent manufactures. The reatail sector of
the industry ranges from the owners of large multinational chains to small local business. This
business will covered by the value line generally to the standard industrial page format. In case
of athletic shoes segment there will be two major players Nike and Adidas are continuously
dominating this category. If knocking the most powerful countries in the world then United
States is the most powerful countries in the world, footwear industry is growing gradually year
on year as a result it accelerate the economic growth.
 Revenue in the footware market amounts to US dollar 93.334 million. It is expected to
grow annually by 2.3%, CAGR (Hatton, Spinellis & van Genuchten, 2017)- (2020-23).
 The largest segment of the market is textile and other footware with the market volume of
US $41,245 million in 2020
 Compared to the gloabal market, most of the revenue is generated in the united states, US
dollar 93,334 million in 2020.

3
Accounting
Graphical representation of revenue
Revenue growth
Loking at the market CAGR in Footware segment, proposed business will be justified
and profitable. This study research may affect this business with respect to making this product.

4
Accounting
Cost
1. Materials and strategy
To procure this product below mentioned materials needs to prurchase:
 Fabric
 Plastic
 Rubber
 Foams
 Metallic
 Wood
 Leather
Sport shoe is a capital intensive product.
Being a low cost producer in the market and to make product differentiation, mainly it is
required to follow capital intensive mechanism and set the target market. Here this product only
for gym going people or fit conscious people.
2. Cost estimation
Below table shows the estimation of cost (Fleckenstein, & Longstaff, 2018), that being produced
in a month and yearly basis. It is assumed that mothly 36000 units will be produced. All the
figures are taken hypothetically and estimated accordingly.
Amount in dollar Amount in dollar
Components Monthly Yearly Per unit $
Materials 200000 2400000
Labour 10000 120000
Electricity 5000 60000

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Accounting
Fuel 1300 15600
Repair and maintenance 4100 49200
Factory overheads 9000 108000
Factory cost 229400 2752800 6.37
Administration overhead 45000 540000 1.25
Cost of production 274400 3292800 7.622
Selling and Distribution
overhead
Selling cost 55000 660000 1.53
Distribution cost 22000 264000 0.61
Cost of sales 351400 4216800 9.76
Interest 12000 144000 0.33
Depreciation 10000 120000 0.28
Production Cost 373400 4480800 10.37
Profit 126600 1519200 3.52
Sales 500000 6000000 13.89
3. Classification of cost
As per the above table the cost can be classified as
Materials
Labour
Electricity
Fuel
Repair and maintenance
Factory overheads
Product cost
Administration overhead
Selling cost
Distribution cost
Period cost
Here depreciation and interest indicates as fixed cost and labour, materials are variable cost
(Chen & Koebel, 2017).
4. Cost of making in one unit is $ 13.89

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Accounting
5. To meet the estimated operating income of $ 500,000 it is required to charge 14 per pair
of shoes approximately.
6. Break-even analysis
So the Break even sales in units is 5330 and the Break even sales in dollars is 740 (Morano &
Tajani, 2017).

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Accounting
Reference
Hatton, L., Spinellis, D., & van Genuchten, M. (2017). The long‐term growth rate of evolving
software: Empirical results and implications. Journal of Software: Evolution and
Process, 29(5), e1847.
Fleckenstein, M., & Longstaff, F. A. (2018). Shadow funding costs: Measuring the cost of
balance sheet constraints (No. w24224). National Bureau of Economic Research.
Chen, X., & Koebel, B. M. (2017). Fixed cost, variable cost, markups and returns to
scale. Annals of Economics and Statistics/Annales d'Économie et de Statistique, (127),
61-94.
Morano, P., & Tajani, F. (2017). The break-even analysis applied to urban renewal investments:
a model to evaluate the share of social housing financially sustainable for private
investors. Habitat International, 59, 10-20.