29 Aug 201029 Aug 2010
MANAGERIAL ACCOUNTING(ACC 720)
PROBLEM2 – Datuk Kassim
By:MOHD NOOR SATAPA
2010610062AZAMIAH JAMALUDDIN
2010425354MIMI SADINA ABU SAMAH
2010840986NURHIDAYAH ISMAIL
2010408618
1.0 Issues & AssumptionsIssues & Assumptions
AnalysisAnalysis2.0
Management Action & SolutionsManagement Action & Solutions3.0
Future Strategy and RecommendationsFuture Strategy and Recommendations4.0
ConclusionConclusion5.0
1.0 Issues & AssumptionsIssues & Assumptions
AnalysisAnalysis2.0
Management Action & SolutionsManagement Action & Solutions3.0
Future Strategy and RecommendationsFuture Strategy and Recommendations4.0
ConclusionConclusion5.0
1.0 Issues & Assumptions1.0 Issues & Assumptions
Datuk Kassim has a small publishing company. He kept it simple with minimum investment. He managed to earn profit in its early stage. Company suddenly gain publicity thus increase sales by
25% To fulfil demand, he began to invest heavily in
machinery and equipments. Result in high investment, he only earn 16¢ profit from
every RM1 sold. Situation getting worse, his sales drop 25% from
previous peak level.
Case background:
1.0 Issues & Assumptions1.0 Issues & Assumptions
Underlying issues found in Datuk Kassim case are:
Datuk Kassim has no detail planning and budgeting for his business.
Due to above, Datuk Kassim is struggling to meet the load of monthly expenses to keep his business afloat.
1.0 Issues & Assumptions1.0 Issues & Assumptions
Assumptions made before analyze the case:
Datuk Kassim’s business publishes books and in average each book is published and sells at Datuk Kassim’s business publishes books and in average each book is published and sells at
RM100
Datuk Kassim sold books monthly on average ofDatuk Kassim sold books monthly on average of 1000 units
Monthly expenses on factory rent, machinery equipment, employee salary is estimated at Monthly expenses on factory rent, machinery equipment, employee salary is estimated at
RM40,000
Printing & royalty fees to writers per book is atPrinting & royalty fees to writers per book is at RM84
His knowledge on budgetary planningHis knowledge on budgetary planning None
1.0 Issues & AssumptionsIssues & Assumptions
AnalysisAnalysis2.0
Management Action & SolutionsManagement Action & Solutions3.0
Future Strategy and RecommendationsFuture Strategy and Recommendations4.0
ConclusionConclusion5.0
2.0 Analysis2.0 Analysis
Fixed Cost
Variable Cost
Mixed Cost
COST BEHAVIOUR
Datuk Kasim need to understand his business cost behavior:
2.0 Analysis2.0 Analysis
Datuk Kasim also need to understand his Cost-Volume Profit analysis:
COSTCOST
VOLUMEVOLUME
PROFITPROFIT
But first he needs to adhere with CVP analysis assumptions: The behavior of both costs and revenues is linear throughout the publishing activity. Costs are either fixed or variable. Number of books published is the only factor affecting costs. All units published are sold. When more than one book published, the sales mix will remain constant.
2.0 Analysis2.0 Analysis
CONTRIBUTION MARGIN (CM):
CM per unit = Unit Selling Price - Unit Variable Cost
= RM100 - RM84
= RM16
CONTRIBUTION MARGIN RATIO (CM Ratio):
CM Ratio = CM per UnitUnit Selling Price
= RM16/RM100
= 0.16 or 16%
2.0 Analysis2.0 Analysis
CVP Income statement for Datuk Kassim business:
Total (RM) Per Unit (RM)
Sales (1,000 books) 100,000 100
Variable Cost 84,000 84
Contribution Margin 16,000 16
Fixed Cost 40,000
Net Income -24,000
CVP Income Statement for Month Ended 31st Aug 2010
2.0 Analysis2.0 Analysis
BREAK EVEN POINT (BEP):
Break Even Point = Fixed CostCM per Unit
= RM40,000 / RM16
= 2,500 unit of books sold
Margin of Safety Ratio = (Actual Sales - Break Even Sales)Actual Sales
= (RM100,000 - RM250,000) / RM100,000
= -1.5
MARGIN OF SAFETY RATIO (MoS Ratio):
1.0 Issues & AssumptionsIssues & Assumptions
AnalysisAnalysis2.0
Management Action & SolutionsManagement Action & Solutions3.0
Future Strategy and RecommendationsFuture Strategy and Recommendations4.0
ConclusionConclusion5.0
3.0 Management Action (Way Forward)3.0 Management Action (Way Forward)
Determine product mixDetermine product mix
Reason of understanding and applying of CVP analysis concept:
Maximizing use of production facilitiesMaximizing use of production facilities
Setting selling pricesSetting selling prices
1.1.
2.2.
3.3.
Elements to be analyzed :
Mix of product sold
fixed costs
Selling price
CVP CVP
Sales Volumevariable costs
3.0 Management Action & Solutions
3.0 Management Action & Solutions
Contribution = Unit Selling - Unit Variable Margin Price Cost
CONTRIBUTION
MARGIN
Variable Cost
Dir/MatDir/Machine
hrs
Dir/ Labor
Dir/energy
3.1 VARIABLE COST PER UNIT
reducing variables cost will give a direct impact to get a higher CM and as well a lower break-even
Break-Even = Fixed CostPoint Contribution Margin
3.0 Management Action & Solutions
3.0 Management Action & Solutions
M/C deprec.
insurance
Loan interest
FIXED COST
Factory rental
Admin staff wages
Break-Even = Fixed CostPoint Contribution Margin
3.2 TOTAL FIXED COST
reducing the total fixed cost will help the business to achieve low BEP per unit book – meaning a higher net income per unit book will gained.
Net = Contribution - FixedProfit Margin Cost
3.0 Management Action & Solutions
3.0 Management Action & Solutions
3.3 EFFECT OF SALES VOLUME ON PROFIT
SALES = VARIABLE + FIXED + TARGETCOST COST NET INCOME
Therefore, at a given selling price (e.g. RM100/unit), target net income, fixed cost and variables - sales volume can be determined required to achieve desired profit.
able to assess early prediction and determine how accurate the gross sales volume level, and monitor the sales volume whether it is actually on track to make the profits or otherwise.
3.0 Management Action & Solutions
3.0 Management Action & Solutions
PRODUCT POSITIONINGPRODUCT
POSITIONING
PRODUCTFEATURE
PRODUCTFEATURE
CHANNEL DECISIONCHANNEL DECISION
MARKETING STRATEGY
MARKETING STRATEGYPROMOTIONPROMOTION
UNIT SELLING PRICE
UNIT SELLING PRICE
TARGET MARKET SELECTION
TARGET MARKET SELECTION
3.4 UNIT SELLING PRICE
3.0 Management Action & Solutions
3.0 Management Action & Solutions
3.4 UNIT SELLING PRICE
Contribution = Unit Selling - Unit Variable Margin Price Cost
TARGET NET = CONTRIBUTION - FIXEDINCOME MARGIN COST
3.0 Management Action & Solutions
3.0 Management Action & Solutions3.5 SALES MIXED
SALES MIX = SALES OF INDIVIDUAL PRODUCTTOTAL SALES OF THE COMPANY
BEP = FIXED COSTWEIGHTED-AVERAGE UNIT CM
WEIGHTED-AVERAGE = (UNIT CM X SALES MIX %) + (UNIT CM X SALES MIX %)UNIT CM
1.0 Issues & AssumptionsIssues & Assumptions
AnalysisAnalysis2.0
Management Action & SolutionsManagement Action & Solutions3.0
Future Strategy and RecommendationsFuture Strategy and Recommendations4.0
ConclusionConclusion5.0
4.0 Future Strategy & Recommendations
4.0 Future Strategy & Recommendations
BUSINESS PLANBUSINESS PLAN
PARTNETSHIP & VENDORSPARTNETSHIP & VENDORS
NEW TECHNOLOGYNEW TECHNOLOGY
MARKET RESEARCHMARKET RESEARCH
RECOMENDATIONSRECOMENDATIONS
To have a business plan To have a business plan
Sub-contracting the printing process & binderies Hire freelance to do editing, proof-reading & layout.
Sub-contracting the printing process & binderies Hire freelance to do editing, proof-reading & layout.
To venture into new technology e-books, print on demand, accessible publishing
To venture into new technology e-books, print on demand, accessible publishing
Conduct market research on new product & innovative Widen product range covering high-end to low-end
Conduct market research on new product & innovative Widen product range covering high-end to low-end
4.0 Future Strategy & Recommendations
4.0 Future Strategy & Recommendations
FINANCIAL PLANFINANCIAL PLAN
BUDGETARY PLANNINGBUDGETARY PLANNING
CAPITAL BUDGETINGCAPITAL BUDGETING
RECOMENDATIONSRECOMENDATIONS
Have a proper financial planning. Ensure his business is liquid & ultimately profitable Apply for financial facility like Revolving Credit or Overdraft
Have a proper financial planning. Ensure his business is liquid & ultimately profitable Apply for financial facility like Revolving Credit or Overdraft
To prepare for budgetary planning for control & evaluation To ensure business run on pre-allocated budget To use master budget
To prepare for budgetary planning for control & evaluation To ensure business run on pre-allocated budget To use master budget
Use to determine company long term investment To implement Cash Payback Technique
Use to determine company long term investment To implement Cash Payback Technique
1.0 Issues & AssumptionsIssues & Assumptions
AnalysisAnalysis2.0
Management Action & SolutionsManagement Action & Solutions3.0
Future Strategy and RecommendationsFuture Strategy and Recommendations4.0
ConclusionConclusion5.0
5.0 Conclusion5.0 Conclusion
Understand & know the importance of having basic business knowledge.
Know it is important to know the impact of changes in market condition & customer demand to his business.
Gain better understanding of his business structure, competitive advantage and capital requirements.
By now Datuk Kassim should :
Restructure, have new business plan, have a strategic plan and make a proper budget
With our future recommendations & a master budget:
Datuk Kassim can have ideas on how to manage his business effectively thus allow him to project future cash flow.
THE END
&
THANK YOU
4.0 Future Strategy & Recommendations
4.0 Future Strategy & Recommendations
Cost Of Capital Annual Cash = Cash PaybackInvestment Inflow Period
Assume RM12K spent on a machine with useful lifetime of 8 years. Annual Saving of 6K in cash outflows are expected from operations.
Cash Income per year = Net Income + Depreciation Expense
Thus, P = RM12K / RM6K = 2 YEARS
4.0 Future Strategy & Recommendations
4.0 Future Strategy & Recommendations