MANAGEMENT ACCOUNTING

 

Introduction

Management accounting relates to the provisioning of the accounting information thus allowing for setting up the ground for implementing control functions and process controls. These initiatives aid the process of making a short-term and long-term decisions. It further simplifies the methods of achieving targets and business objectives. Pronounced on this concept, this assignment aims to explore the making of the financial statements of a new company named Açaí seated in Ireland in Dublin City.  The company will be selling berries’ products for health benefits.

 

 

Table of Contents

 

 

Introduction. 3

1. Overview of the business. 3

2. Assumptions of a financial plan. 4

a. Sales Budget 4

b. Average sales. 5

c. Average GPM (Gross Profit Margin) / Contribution. 6

d. Employee Figures. 7

3. Business Financials. 8

a. Cash Flow budget 8

b. Income Statement 10

c. Balance Sheet 11

d. Breakeven point 14

Conclusion. 15

References. 17

1. Overview of the business

Açaí is more used for representing a bowl filled with berries and other fruits that work in sync together for bringing health benefits to the customers. Thus, this new business will be set up for selling these berries in many forms for introducing major health benefits to the customers.

The main fruits ingredients, which are used here, are berries, which can be used in major dietary formats like raw fruits, in powdered form or yoghurt.

This company will be operated from a kiosk in Dublin City, Ireland. The kiosk will be located in the Ilac shopping mall in Ireland. It is visualised as a sole trader company, which will be under the direct control of the owner itself. For supporting and helping purpose, the company will rely on the working capacity of two staff. The owner of the company Açaí will manage all the management appraisals and the financial details. 

2. Assumptions of a financial plan

A financial plan includes the details of the cash flow and budgets like the investments and the return on it, debts, insurance and savings. These details contribute to the mapping of the goals and identifying the key business areas asking for prioritization (Koochakpour & Tarokh, 2016)

a. Sales Budget

Acai Company

Sales Budget

The year 2020

 

 

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Total

Expected sales units

75

105

126

165

471

per unit cost

12.05

12.65

13.29

13.95

51.94

Sales amounts

903.75

1,328.51

1,673.93

2,301.65

6207.836

Table 1: Sales Budget

(Source: Created by Researcher)

The sales budget for the company is made quarterly.

Assumptions;

  • The company in every quarter of the year has projected an increase in the number of expected units sold
  • The per-unit selling price of units has been analysed to increase by 5% every quarter

Based on the evaluation of every quarter, the total sale amount in the first year of business is estimated to be 6207.836.

Figure 1: Sales amount

(Source: Created by Researcher)

b. Average sales 

This section deals with estimating the average sales of this new business for the year 2020.

Expected average units

117.75

per unit average cost

12.98425

Sales amounts (average)

1551.959

Table 2: Average Sales

(Source: Created by Researcher)

Assumptions

  • The average sales depict the amount for each quarter
  • It means for reaching the projected sale amount, the company to make sure that in every quarter, it can achieve the amount given in table 2.
  • The average sale amount of €1551.959 holds up the financial viability of the company Açaí.

c. Average GPM (Gross Profit Margin) / Contribution

Total sales amount

6207.83616

COGS (Cost of Goods sold per unit)

10.90

Total COGS

5,133.90

Gross Profit

1,073.94

   

GPM

17.2996859

Table 3: GPM and contribution

(Source: Created by Researcher)

Assumptions

  • The cost per unit is projected to be 10.90
  • Based on the financials given in table 3, the GPM or the contribution margin has been calculated to be 17.29%
  • The formula used for GPM is (Gross Profit / total sales amount) * 100

This GPM indicates the profitability attached to the business and the possibility of it in operating higher profitable grounds.

d. Employee Figures

Number of Employees (excluding the owner)

2

Hours of work

9.80

rate per hour

€ 4

Per day wage per employee

€ 44

monthly wage per employee

1176

Table 4: Wage for the employees

(Source: Created by Researcher)

Assumptions

  • The owner will man the direct operation of the business covering all the financials and management aspects.
  • This company with the designation of shop assistants will hire two employees.
  • Viewing the rate per hour for each employee, the total wage for 1 employee is estimated to be 1176.

3. Business Financials

a. Cash Flow budget

Cash Flow

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Beginning cash Inflow

4,500

4,706.75

5,412.26

6,485.89

         

Cash Inflow

       

Sales of products

903.75

1,328.51

1,673.93

2,301.65

Operating loan received

800

900

1000

1100

Remittances

78

78

78

78

         

Total Cash Inflow

1,781.75

2,306.51

2,751.93

3,479.65

         

Cash Outflow

       

Purchased stocks

500

525

551.25

578.8125

taxes

105

105

105

105

Processing fruits

250

250

300

300

Marketing

250

250

250

 

Interest

20

21

22.05

23.1525

Payments on equipment

230

230

230

230

Accounts payable

220

220

220

220

Total Cash Outflow

1575

1601

1678.3

1456.965

         

net cash flow

206.75

705.51

1,073.63

2,022.68

Cash at the end of the period

4,706.75

5,412.26

6,485.89

8,508.57

Table 5: Cash Inflow and Cash Outflow

(Source: Created by Researcher)

The above table displays the net cash flows for the company. It can be observed that there is a gradual decrease in the net cash outflows and a noticeable increase in the net cash inflows. The main indicators of cash inflows are operating loans, remittances, and the sales amount accumulated from the products (Hope, Thomas & Vyas, 2017). Hence, in the first year of operations, the business will be able to base its managing grounds on positive cash flows. The net cash flows for Açaí at the beginning of the period will be around 206.75 and the end of the period, the considerable increase is projected by an amount  2022.68. Hence, the net cash available with the business at the end of the first year will be around  8508.57.  

b. Income Statement

Income Statement (For the year 2020)

Particulars

Amounts

Revenue

 

Products sales

6207.83616

Interest revenue

1300

Gain on assets' sales

3000

Total revenue

10507.8362

   

Expenses

 

COGS

5,133.90

Office Supplies and Equipment expense

2320

Interest Expense

2101.56723

Advertising expenses

750

Total expense

10,305.47

Table 6: Income Statement

(Source: Created by Researcher)

The main particulars included under the revenue perceived by this new business are interest revenue, sales of commodities, and the extra revenue from the sale of the company's assets. According to Drake, Roulstone & Thornock, (2016), these are a significant part of the investment made for expanding its profit base and attracting the customers. The interest expense for the company is 20% of the total revenue earned by this new business. This rate is aligned with the corporate tax prevailing in Dublin City. The total annual expense calculated for this company is  10305.47. 

c. Balance Sheet

Balance Sheet

 

Assets

Amounts

Current Assets

 

Cash

€ 8,508.57

Inventory

8200

Accounts Receivable

9500

Supplies

5100

Total current assets

€ 31,308.57

Plant and Equipment

5800

   

Intangible Assets

2200

Goodwill

 

Total assets

€ 39,308.57

   

Liabilities

 

Current liabilities

 

Accounts Payable

3600

Interest payable

1000

Wages payable

€ 31,680

Taxes payable

80

Total Current liabilities

36360

   

Total liabilities

36360

Table 7: Balance Sheet

(Source: Created by Researcher)

Accounts receivable, inventories and cash equivalents made the major portion of a business's current asset amount. The current assets, along with the equipment and intangible assets, the total assets are estimated to be € 39308.57. The wages paid to the two employees account for a large portion of the current liabilities. Based on the information given in table 7, € 39308.57 is the estimated amount of total liabilities.

d. Breakeven point

Fixed costs

1570

Revenue per unit

22.3096309

Variable cost per unit

€ 5.50

Breakeven point

€ 93.40

   

c/s ratio (in %)

17.2996859

Table 8: Breakeven point

(Source: Created by Researcher)

This section deals with the estimation of the breakeven point and the c/s ratio. The financial indicators considered are the fixed costs, revenue and the variable cost per unit. These are included for the analysis of the breakeven point, which highlights the point of equalization of the total expense and the total revenue amount (Kampf, Majer?ák & Švagr, 2016).

The formula accounted for the breakeven point is as follows;

= (Fixed costs / (Revenue - variable cost) for each unit)*100

This amount was calculated to be €  93.40. 

The formula considered for C/S ratio is written as follows

= (Total amount of sales - Total amount of COGS / Total amount of sales) * 100

Similar to the profit contribution margin calculated previously, the ratio is estimated to be 17.29%. 

The financial statements given under the budget financials are the cash flow statements, income statements and balance sheets. Inclusion of these statements within the budget plan allows viewing the performance of the new company in the current market conditions (Tassadaq & Malik, 2015). With the breakdown of the expenses amount and the revenue amount, the owner of the business will be able to identify the main factors driving the business’s performance. 

All these are presented only for one year to evaluate the performing ability of the business and carefully visualise the expectation of the owners with the levels of profits. 

Conclusion

The company named Acai will be selling various berries products in Dublin City. The company's operations will be operated from a kiosk located in the Ilac shopping mall. The financials presented by the company is based on the sales budget, average sales amount, and the GPM. For this, the budget is carefully presented for every quarter in the first year. The business financials are presented with the help of financial statements like the balance sheet, cash flow statements, and income statements. The financial indicators have been able to project the profitability of the business through positive cash flows and higher revenue compared to total assets. 

 

 

References

Drake, M. S., Roulstone, D. T., & Thornock, J. R. (2016). The usefulness of historical accounting reports. Journal of Accounting and Economics61(2-3), 448-464. Retrieved on 25th November 2019 from: https://daneshyari.com/article/preview/5086542.pdf

Hope, O. K., Thomas, W. B., & Vyas, D. (2017). Stakeholder demand for accounting quality and economic usefulness of accounting in US private firms. Journal of Accounting and Public Policy36(1), 1-13. Retrieved on 27th November 2019 from: https://tarjomefa.com/wp-content/uploads/2018/04/TarjomeFa1-F559-English.pdf

Kampf, R., Majer?ák, P., & Švagr, P. (2016). Application of break-even point analysis. NAŠE MORE: znanstveno-stru?ni ?asopis za more i pomorstvo63(3 Special Issue), 126-128. Retrieved on 27th November 2019 from: https://daneshyari.com/article/preview/5086542.pdf

Koochakpour, K., & Tarokh, M. J. (2016). Sales Budget Forecasting and Revision by Adaptive Network Fuzzy Base Inference System and Optimization Methods. Journal of Computer & Robotics9(1), 25-38. Retrieved on 25th November 2019 from: http://www.qjcr.ir/article_689_5b3234aa2b4163f6bcd8e6144959a85b.pdf

Tassadaq, F., & Malik, Q. A. (2015). Creative Accounting & Financial Reporting: Model Development & Empirical Testing. International Journal of Economics and Financial Issues5(2), 544-551. Retrieved on 26th November 2019 from: https://dergipark.org.tr/download/article-file/363026

 

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