BUSINESS REPORT

BUSINESS REPORT

By Name

Course
Professor
University
City/State
Date

Letter of authorization
Raw materials
Prepared for, XYZ Company general manager
By Rowland Justine
September 2014
Company

MEMORANDUM
To: Jane Lucas
From: Rowland Justine
Subject: cabinets
Date: 10th October 2014
In an aim to produce the most quality product as we discussed in our previous meeting, it is essential that the company acquires quality raw materials from trusted suppliers to make cabinets.
It is recommendable that in the coming weeks you assess the raw-materials from cab parts and sheers company suppliers, Bergmeyers manufacturing and south west Door Company. After checking the raw materials, kindly present your results in the form of a formal management business report. The materials need be durable and be compatible when making the cabinets. Other factors to considered when evaluating the raw materials from the various suppliers include:
Availability
Cost price and Urgency
Kindly give me feedback in regard to the report by end month in order I can read through before considering your recommendations with equipment committee.
I would be glad to respond to any questions that maybe of concern.
Rowland Justine
Letter of submittal
MEMORANDUM
To: Rowland Justine
From: Jane Lucas
Subject: cabinets
Date:
I hereby submit the report you requested on the raw materials needed in making of cabinets of our customers. The raw materials were reviewed for this report: the doors, shelves, panels, boxes and drawer fronts which were all suitable for the business.
The report has analyzed the features for the cabinets and durability of the raw materials having specifications put into consideration.
It is with great confidence that the raw materials supplied will be suitable to make quality cabinets.
I will be great full if you consider me in the implementation of more raw materials to make cabinets.
Jane Lucas

Executive summary
The report was to be presented to the bank manager with the intention of borrowing funds and making repayments for the making of quality cabinets. The report has considered that the raw materials be supplied timely to enable customers get the cabinets as need be. The cabinets are required for residential purposes, commercial as well as resort market. The workers have great expertise in the making of the cabinets. The cabinets are made from durable wood; the doors are all made with great expertise. The prices of the cabinets are affordable and are based on the market forces as well as considering the cost of producing the cabinets. By taking into consideration the raw materials, it is recommended that the company would be most suitable due to the value of money, standard features and durability.
Introduction
Purpose
The resolution of this report was to present it to the bank manager with the intention of borrowing funds and making repayments for the making of quality cabinets.
Scope
While assessing the raw materials for making the cabinets, it was crucial to consider their durability, the initial cost, and suitability for the users, standard features, as well as benefits and warranties.

Method
The information obtainable in this report was gathered from consultations of experts in this sector. The consultation involved the carpenters on the technical bits of the making of the cabinets.
Limitations
The raw materials are very expensive
Lack of well-trained staff
In doing the research, it became difficult to collect all information from cabinet experts
Assumptions
It can be assumed that the raw materials needed for the making of cabinets will be delivered in time to ensure that they are easily available to the clients.
It is also assumed that the cabinets will suit the client’s tastes and preferences thus giving him more satisfaction.
Background
The company will be called XYZ Furniture Company. The company will be located in Brighton, London in the United Kingdom. It will be established as a result of increasing demand of cabinets in the households; resorts and traders needing them for commercial purposes. The customers are in need of a broad selection of well-designed cabinets, cabinets with high-end finishes and of high quality (Hansen et al. 2009). The business aims to have a great business having a strong market position in the residential, commercial and resort markets so as to have more revenues. The capital to start up a business will be provided by the owners as well as from grants and five-year loans from the bank. The company aims to be the best cabinet manufacturer in the regional market and most reliable cabinet supplier. It also aims to increase the revenues to double what it gets in the first year of business. Another objective is to have a showroom where it can put all the cabinets for customers to see. The company aims to increase sales to all the customers by 70% to the residential areas, 20% in the commercial sector and 30% for the resort market. The start up amount cost of producing the cabinets is $104,700. The expenses cost a huge amount and thus need to price the product to such an amount that considers the cost necessary in making the cabinet. The loan to be borrowed will be paid in three years time, through debt financing.
Cost structure of the product

The breakeven analysis technique will be used by the finance director to help plan on the product launch and whether it is worth pursuing. A breakeven analysis determines the relationship between costs, profit and volume with the volume being an independent variable that influences the other two. (Cafferky & Wentworth, 2010)

A diagram representing the breakeven analysis
Profit at its maximum Total revenue Total cost
Y axis Profits
Revenue

Variable cost

Contribution

Margin of safety
Losses Total cost

Fixed cost

X-axis output

The cost volume profit analysis will show the sales level at which cost and revenue are in equilibrium. It will thus be useful in determining the total units of the company products that need to be sold to settle costs incurred in the production. (Cafferky & Wentworth, 2010) It will be used to determine the best pricing structure of the company’s product. C. v. p is an excellent tool in decision making and is used to make pricing decisions, special order acceptance, sales mix and the multi-shift working. It is also used in short-term planning activities of the company and will apply this role to plan for a new product to be launched. (Cafferky & Wentworth, 2010)
Concepts involved in the break-even analysis include the breakeven point which is the sales level. Another concept attributable to the breakeven analysis is the contribution per unit. The breakeven point in units is calculated by dividing the fixed costs in producing a new product against the contribution per unit. (Cafferky & Wentworth, 2010) BEP in financial terms is calculated by dividing the fixed costs against contribution per the selling price ratio. Contribution per selling price ratio is got from dividing the contribution per unit against the selling price per unit as a percentage. Contribution per unit is calculated by subtracting the variable costs from the selling price per unit. (Cafferky & Wentworth, 2010) Another concept in the breakeven analysis is a calculation of sales required to earn a profit in units and monetary terms. The sales in units are calculated by summing the fixed costs and the target profit then dividing against the contribution per unit. The sales in monetary units are got by summing the fixed cost and the target profit then dividing against the contribution per selling price ratio. (Cafferky & Wentworth, 2010)
The concepts will be used by the finance director to calculate the break even, and the contribution expected about introduction of a new product in the market. The finance director will assume a total revenue and total cost curve that are linear when he plots the curves on two plane axes. (Cafferky & Wentworth, 2010)
In the above diagram, contribution is used to meet fixed costs and after this, contribution becomes profit. The C.V.P analysis has several disadvantages such as the fixed costs changes at different activity levels. It is also seen that the variable costs and sales are not likely to be in linear. (Cafferky & Wentworth, 2010) The breakeven chart describes short-term relationship of costs, volume and profits. It makes it difficult to make long-term planning. The assumption of variable costs being of the same activity indicator becomes a gross over-simplification which reduces the accuracy of the breakeven charts and C.V.P analysis. (Cafferky & Wentworth, 2010)
Operational budget (sales budget)
The sales budget exhibit a sales quantity of 7,000 in the first month, at a selling price of 300 which amounts to 2,100,000. The demand increases in the following month to 15,000 units sold when the price reduces, and the sales revenue also increases to 3,750,000. Lastly in the month of April, the demand decreased as the selling price per unit increased to 320 lowering the demand to 6,000 and sales revenue to 1920000.
Purchase budget
The purchase budget recorded sales budget in units in the three months where in the month of February, a total of 3700 and a production budget in units amounting to 17000. The month of march shows an increase in sales budget in units to 4000 and a production budget of 16500 units. The sales budget increased in the month of April to 5500 as well as the production budget t0 15000.

Summary
XYZ Company is experiencing steady growth as a result of the residential market. Many homesteads are demanding the product, and there is anticipation of tremendous growth as a result. The company is taking part in this growth by putting the development of design as a priority, offering a simple ordering process and having proper project management which is aimed at being a successful company. The company maintains a competitive edge by supplying customers with enough cabinets that meet their demands and maintaining quality of the product.
XYZ Company aims to establish itself through advertising (Kinney & Raiborn, 2009).
The product is worth investing as all years after the first year of business exhibit a surplus. In this case year one has a surplus of £241,250. The surplus increased from the month of January to £ 758390 February. The profit still continued to increase in the month of March to £768638. Lastly was the month of April, which registered the highest profit of £847,650. The assumption from the increasing profits is due to increased settlement of people within the business premises thus many residents requiring cabinets say for kitchen purposes. Establishment of offices near the region increased demand of the cabinets (Baker & English, 2011).
Implications of producing management accounts
Management accounting is a method of organizing management reports and accounts which help to provide accurate and timely financial and statistical information. The management requires the information in making daily decisions (Weygandt et al. 2010). Management accounting will help the carpentry team in ensuring that timely monthly and weekly reports are made for thee users of financial information. The information will more important to the departmental managers and the chief executive officer to be used in decision making (Brigham & Ehrhardt, 2011)
The reports will entail cash available, sales revenue, account payables, receivables, amount of outstanding debts, inventory and raw materials. It is essential in that it helps the management to develop an aim and goal that the organization may undertake. Management accounting will help in the provision of better services to the cabinet customers. Management accounting measures the performance of the XYZ furniture company (Chapman et al. 2009). Using management accounting in cabinet making, will help to increase efficiency of the business and thus the standards and quality of the cabinet will improve. The production and the cost structure of the product will simultaneously increase (Jackson et al. 2009).
Standard Cost card
Absorption standard cost
Cost per unit £
Marginal standard cost
Cost per unit £
Direct materials
14
45000
31
Direct labor
10
37000

27
Variable production overhead per unit
320
121,000
450
Fixed production overhead per unit
120
Standard variable cost per unit
90
Standard cost per unit
100
75
36
Standard profit
32,000
Standard contribution
230
Standard selling price per unit
140
540

245

Breakeven point
Total fixed cost/ contribution per unit
Total fixed cost = 123000/ 6
= 20500 units
The number of units to sell to accomplish the target profits
Target profit =
Fixed cost + target profit / contribution per unit =
123000 + 32000/6 = 128333.30
Margin of safety units
= budgeted units – break even units
420,000 – 321,000 = 99000 units

One (1) Year Operational Budget (per month)
Operational budget (sales budget)
Sales quantity (units)
7000
15000
6000
Total
X selling price per unit
300
250
320
870
Sales revenue
2100000
3750000
1920000
7770000

Purchase budget

Sales budget (units)
3700
4000
5500
Total
Production budget unit
17000
16500
18000
48500

Direct material purchase/usage budget

Month
Production budget *Std qty (units)
Purchase / usage budget

Production budget
Std usage per unit
Purchase/ usage budget in units
Std per kgs
Purchase/ usage budget
Month

£104,700
4000
16000
6000
2.67

£105200
5000
15950
5900
2.70

£110,500
7500
17200
7200
2.40
Total
£320400
13500
49150
19100
2.57

Direct labor budget

units
£
£
£
Total
Standard cost per unit
350
325
360
1035
Direct labor cost (
23000
22150
24000
69150

8050000
7198750
8640000
71570250

Variable production overhead budget

£
£
£
Total
Production units
16000
15000
17000
48000
Variable production overhead per unit
160
125
187
472
Variable production cost overhead
220
197
230
647

Other budget

February
March
April
Total
Fixed production overhead per unit
125
117
200
442
Leasing
£1200
1600
1450
4250
Fixed administration expenses
£890
850
900
2640
Bank borrowings (loans)
£179000
179000
179000
537000

Cash Budget
Month
January £
February £
March £
April £
Cash receipts
123,450
125600
117,800
130000
Bank loans
179000
179000
179000
179000
Cash sales
400900
510000
540000
610000
Total receipts
302450
814600
836800
919000

Payments
4500
4750
4700
4960
Materials
25000
24650
26500
27000
Labour
28000
22800
33000
35000
Variable production overheads
160
125
187
210
Fixed production overheads
250
235
225
190
Fixed administration expenses
890
850
900
1050
Leasing
1200
1600
1450
1740
Loan repayment
1200
1200
1200
1200
Total payments
61200
56210
68162
71350
Surplus/ deficits
241,250
758390
768638
847,650
Opening cash balance
(24,560)
265810
492580
276058
Closing cash balance
265810
492580
276058
571592

Budgeted income statement for the three months ended 30th April

Sales
£
£
Variable cost of sales
9500
11000
Total contribution
8000
9700
Fixed cost
24000
21000
Production
18000
19000
Administration
32000
30000
Profit
42000
40000

References
Baker, H. & English, P. (2011) Capital budgeting valuation financial analysis for today’s investment project Hoboken Wiley
Brigham, E. & Ehrhardt, M. (2011) financial management: theory and practice. Mason, OH: South-Western Cengage Learning
Chapman, C., Hopwood, A. & Shields, M. (2009) Handbooks of Management Accounting Research 3-Volume Set.Burlington Elsevier
Wentworth & Cafferky (2010) Breakeven analysis the guide to C.V.P analysis: New York: Business Expert Press
Hansen, D., Mowen, M. & Guan, L. (2009) Cost management: accounting and control. Mason, Ohio: South-Western
Jackson, S. Sawyer R. & Jenkins, J (2009) Managerial accounting a focus on ethical decision making Mason South-Western
Kinney, M. & Raiborn, C (2009) Cost accounting: foundations and evolutions. Mason, OH, USA: Thomson/South-Western
Weygandt, J., Kieso, D. & Kimmel (2010) Managerial accounting: tools for business decision making. Hoboken, NJ: Wile

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