ACT202 Final Report ( Grameen Sweet) PDF

Preview

Summary

A Report On: Cost Analysis for “Grameen Sweetmeats” BusinessManagerial AccountingACT-202 # 03, Spring 2020Submitted to:Bushra Ferdous Khan (BFK)Department of Finance & AccountingNorth South UniversitySubmitted by:Name IdSyed Ariful Hoque 1511622030Tanzir Ahamed 1821540030 Milton Kar Mimu 172...

Description

A Report On: Cost Analysis for “Grameen Sweetmeats” Business

1|Page

Managerial Accounting ACT-202 # 03, Spring 2020

Submitted to: Bushra Ferdous Khan (BFK) Department of Finance & Accounting North South University

Submitted by: Name

Id

Syed Ariful Hoque

1511622030

Tanzir Ahamed

1821540030

Milton Kar Mimu

1721475030

Nazia Musabbirah

1911148030

Nabil Ferdous

1911077030

Mahmudur Rahman Khan

1821473630

Date of submission: 10th May, 2020.

2|Page

Table of contents

Executive Summary ……………………………………………………… 04 1. Introduction ………………………………………………………… 05 2. Production Process…………………………………………………. 06 3. Cost Identification for the business ………………………………… 06 4. Calculating Manufacturing Cost per unit …………………………… 10 5. Unit Selling Price and Profit Margin ……………………………. 11 6. Alternative Costing …… ………………………………………….. 12 7. CVP Analysis ……………………………………………………… 13 8. Conclusion ………………………………………………………… 15 References …………………………………………………………………. 15 Appendix …………………………………………………………………… 16

3|Page

Executive Summary We have chosen Grameen Sweetmeats, Bakery& Foods Limited as the topic to work for our Managerial Accounting group project. Grameen Sweetmeats, Bakery & Foods is one of the famous and well known Bakery and sweetmeats shop in Old Dhaka. They produce several types of quality snacks along with different types of sweets, chanachur, various types semai different types of chocolate cookies etc. They focus their attention on adapting technology base, modern plants, professing efficient, integrated operation and pro-actively responding to market demand. We choose an item from them for this cost analysis project which is “Chocolate Cookies.” They produced certain unit of chocolate cookies per month for their target customer. They don’t produce any direct materials and purchase the core materials (flours, cocoa powder, brown & sugar, eggs, chocolate chunks, vanilla essence, baking soda, milk, butter & salt and etc.) from varieties shop respectively.

They use Cost Volume Profit Analysis (CVP Analysis) to estimate the manufacturing and selling of their products. In this report, we will represent the cost identification for one of their product Chocolate cookies which shows the direct material and variable manufacturing cost. The direct material cost being 37506.25 TK and Variable manufacturing overhead cost being 6186.25 TK respectively. We have also given the fixed manufacturing cost 4125 TK. Selling & Administrative cost stands to be 1041.67 TK. The calculation also shows the Unit Selling price of 450 TK per box. The Manufacturing Cost per Unit which is 441.28 TK per unit. Our calculation shows the profit margin of 0.78 %.

In the end, we came up with the cost volume of the net operating income 702.33 TK by selling 200 boxes which indicates a handsome profit. At break-even point, they are selling 64 units and getting 28896.35 TK per profit (CVP) analysis. We get month. And the Degree of Operating Leverage (DOL) is 1.47 times.

4|Page

1.Introduction

The Grameen sweetmeats bakery & foods Limited is one of the major consumer goods producing concerns, which is exclusively concentrated to food products. It is situated in beside the Baitul Mukarram Mosque. There is a lot of stall. It has begun its voyage in 2000 as an individual concern. Inside a limited ability to focus time, it has had the option to make a solid a dependable balance in the market through its quality items and client administrations. Utilizing state of the art technology and mechanized production facilities helped Grameen sweetmeats bakery & foods Limited to achieve competitive advantage over most of its competitor. The mission of the company is to produce good quality product and vision is to establish a solid goodwill through standard business practices. They are making 10 different types of cookie. we are working chocolate cookie. Its production is 250 box and they sell 200 boxes per month. The Grameen sweetmeats bakery & foods have their own signature designs but also take orders for customized designs requested by customers for which extra charge is applied. Soon after the introduction of Grameen sweetmeats bakery & foods Limited with solid pledge to quality and spotlight on presenting new items for the developing business sector have present its "Prepared – to – Eat" snacks brand Grameen chocolate cookies. Beside the Baitul Mukkarram Mosque, there is big market of Gold. Usually higher middle-class peoples come to this market to purchase gold and most of the peoples are come here from higher middle-class society. The target customers of the company are higher, middle and lower middle class of consumers according to their income and social class, both male and female and businessman and all working person. The offered product lines cover a very wide range of target market which enabled the company to secure a distinctive market share in Bangladesh. They make available their product in every geographical location, Urban area in Bangladesh as their target customers are all classes of people. We were talked to MD. Najmul Hasan (Rony) M.s.s, L.L.B Executive director of the Grameen sweetmeats bakery & foods Ltd.

2.Production process 5|Page

The Grameen sweetmeats bakery & foods limited purchase raw materials (which are granulated sugar, brown sugar, butter, eggs, Salt, vanilla essence, flour, baking soda, milk, dark chocolate chunk) directly for the producers. Their production facilities are also located in Gazipur. The raw materials are collected and transport to the production facilities. At first the laborer is take a big bowl. Then they take granulated sugar, brown sugar, butter, eggs, flour, in bowl and mixed it properly. After a few minutes, they add the salt and baking soda. Then they mix again. After that they add milk and vanilla essence. They struggle a little bit because the poured the milk too cold. Then they add flower again and mix. Their goal is to get all the ingredients closer to create a dense dough. Then they add the dark chocolate chunk and butter. After complete the mixture, they will go in the fridge for 20 to 30 minutes. After that, the labor uses an old ice cream scoop and they create cookies of approximately 30 grams. They shape every little ball between their hands and they placed them on the baking oven with a significant amount of space. They bake the ball in the oven for 15 minutes. After the 15 minutes, they come out cookie from the oven. Then they packing all the cookies. Ingredients: For 12 cookies 1. ½ cup of granulated sugar (100 g) 2. ¾ cup brown sugar(165g), melted 3. 1 egg 4. 1 teaspoon vanilla extract 5. 1 cups all-purpose flour (155 g) 6. 2/1 teaspoon baking soda 7. 4 Oz dark chocolate chunk(110g), or your preference. There are 12 cookies in every box which are sell 450 takas per box.

3.Cost Identification 6|Page

Grameen Sweetmeats produces 250 boxes of Grameen ChocolateCookies in a month, and each box contains 12 cookies. We will show the prices of the raw materials Grameen Sweetmeats uses for the production of Chocolate Cookies in a month. 1. 25 kg of granulated sugar Price of 1 kgsugar = 54 taka 25*54 = 1350 taka 2. 41.25 kg of brown sugar Price of 1 kg = 80 taka 41.25*80 = 3300 taka 3. 28.75 kg of butter Price of 1 kg = 600 taka 28.75*600 = 17250 taka 4. 500 eggs Price of each egg is 7 taka 500*7 = 3500 taka 5. 2.5 kg of salt Price of 1kg = 32 taka 2.5*32 = 80 taka 6. 1.25 litres of vanilla essence Price of 28ml bottle = 60 taka 45 bottles needed in a month 45*60 = 2700 7. 38.75 kg of flour Price of 1 kg = 35 taka 38.75*35 = 1356.25 taka 8. 625 grams of baking soda Price of 1 kg = 200 taka 0.625*200 = 125 taka 9. 31.25 litres of milk Price of 1 litre = 65 taka 31.25*65 = 2031.25 taka 10. 27.5 kg of dark chocolate chunk Price of 1 kg = 390 taka 27.5*390 = 10725 taka Nazrul Hasan the baker, is assigned to bake 10 different types of cookies. He gets a monthly salary of 20000 Taka. He works 5 hours a day, 4 days a week, he bakes 2000 boxes of different cookies monthly. Since we are working on Chocolate cookies, it takes almost 10

7|Page

hours to bake 250 boxes of chocolatecookies for Nazrul. He works 80 hours a month. So, per direct labour hour here is 20000/80 = 250 taka.Therefore, 250*10 = 2500 Taka. Cost Items

Direct

Granulate d Sugar

Tk. 1350 (2700 Taka per 50 kg pack )

5.4 Tk. per box

Brown Sugar

Tk. 3300

13.2 Tk. per box

Butter

Tk. 17250 ( 600 Taka per kg pack )

69 Tk. per box

Eggs

Tk. 3500 ( 84 taka dozen )

14 Tk. per box

Materials

Direct Labou r

Manufacturing Overhead (MOH)

80 Taka per kg pack )

Period Cost

Fixed Cost

Variable Cost

Salt

Tk. 80 ( 32 Taka per kg pack )

0.32 Tk. per box

Vanilla Essence

Tk. 2700 ( 60 Taka per 28ml pack )

10.8 Tk. per box

Flour

Tk. 1356.25 ( 1750 Taka per 50 kg pack )

5.43 Tk. per box

Baking Soda

Tk. 125 ( 200 Taka per kg pack )

0.5 Tk. per box

Milk

Tk. 2031.25

8.125 Tk. per box

( 65 Taka litre pack )

8|Page

Dark Chocolate Chunk

Tk. 10725 ( 390 Taka per kg pack )

Baker’s Salary Packing

42.9 Tk. per box

Tk. 2500

10 Tk. per box

Tk.2500

10 Tk. per box

Factory Rent

Tk. 30000 per month

Factory Electricity bill

Tk. 10000 per month

Depreciati on of factory equipmen t

Tk. 3000 per month

Selling and Admin expense

Depreciatio n on showroom showcase for cookies Tk. 333.33 monthly using straight line method.

Employee Salary Tk. 8000 per month who handles the cookies counter.

9|Page

Depreciati on on showroo m showcase for cookies Tk. 333.33 monthly using straight line method.

Employee Salary Tk. 8000 per month who handles the cookies counter.

4.Manufacturing Cost per Unit

They are using absorption costing technique for their product. By using absorption costing they can calculate fixed MOH in the product cost. And it helps them to measure unit product cost. Absorption Costing Unit product cost = Direct Material+ Direct Labor+ Variable Manufacturing Overhead+ Fixed Manufacturing/number of units Produced Direct material costing: Total DM cost = (1750Tk + 3300Tk + 14375Tk + 3500Tk + 1356.25Tk + 10725Tk + 2500Tk) = 37506.25Tk DM cost per unit = (37506.25Tk/250) = 150.03Tk per unit Direct Labor: Direct labor wage rate = (2500Tk/10DLH) = 250Tk per DLH Variable Manufacturing Overhead costing: Total VMOH cost (considering DLH allocation base) = (80Tk + 2700Tk + 125Tk + 2031.25Tk + 1250Tk) = 6186.25/- Tk VMOH per unit: (6186.25Tk/250) = 24.75Tk per unit Fixed Manufacturing Overhead costing: Total FMOH cost (considering DLH allocation base) = [(3000Tk + 30,000Tk) X (10/80)] = 4125Tk Unit product cost = DM per unit + DL per unit + VMOH per unit + (150.03Tk per box + 250Tk per DLH + 24.75Tk per box + = 441.28Tk per box 10 | P a g e

FMOH Total units produced

4125Tk ) 250 boxes

11 | P a g e

5.Unit Selling Price and Profit Margin

Units Produced= 250 units. Units Sold= 200 Units. Unit Selling price of per box of Chocolate Cookies = 450Tk Unit product cost = 441.28Tk per box Direct Labor cost of Grameen Sweetmeats = 250Tk per DLH Net Operating Income:

Grameen Sweetmeats Contribution Format Income statement For the month of March, 2020 Sales Less: Cost of goods sold (COGS) Gross margin (GM) Less: Selling and administration expenses Variable selling and administration expenses Fixed selling and administration expenses Net operating income (NOI)

TK 90000 88256 1744.00 0.00 1041.67 702.33

[Depreciation on showroom showcase is Tk. 333.33 and Employee for that particular counter gets Tk. 8000 as salary. Since they sell cookies of 1600 boxes of 10 different variants per month and the product we are working on is 200 in number, the fixed selling and admin expense for this particular product is (333.33÷1600*200) + (8000÷1600*200) = 1041.67 Tk]

Profit Margin: Profit Margin = Net Profit/ Revenue = (702.33Tk/90000Tk) = 0.78%

12 | P a g e

6.Alternative Costing Grameen Sweetmeats, Bakery and Foods Ltd. uses all of their manufacturing products for the product that we are working on, Grameen Chocolate Cookies are purchased from wholesale distributors. So, there is not much of an option for reducing cost . But, creating a sustainable supply chain management, the company can reduce some cost within.

The company produces 250 boxes of Grameen Chocolate Cookies per month, where each box contains 12 cookies. Now, the company can make 10 cookies per box or produce thinner cookies for reducing the cost. The company uses less sugar to produce these cookies that also cut some cost and it is good for health because sugar causes glucose levels high, obesity, diabetes, tooth decaying etc. These cookies are very good for healthy lifestyle.

It is a manufacturing company and there is about 10% of total wastage occurs from production procedure. During packaging, carrying, and delivering process, wastage happens for manufacturing company. Also, when products remain in Inventory for a long time, the product expires its quality. It is also called wastage of product. But there are no unethical practices. The raw materials are natural, organic, and biodegradable. So, they are very ecofriendly. Even, the owner and labor of the company also use their own products.

We interviewed Md. Najmul Hossain, executive director of Grameen Sweetmeat Bakery and Foods Ltd. for the following information. He provided all the necessary information for our entire report.

13 | P a g e

7.Cost-Volume-Profit (CVP) Analysis: Business-asUsual Scenario (TK) (200 boxes) 90000.00

Sales Revenue (TK450 per box X 200 boxes) Less: Variable expenses Manufacturing variable expense Non-manufacturing variable expense

Alternative Scenario (TK) (200 boxes)

73908.00 0.00

Total variable expenses

73908.00

Contribution Margin Less: Fixed expenses Manufacturing fixed expenses Non-manufacturing fixed expenses Net Operating Profit

16092.00

Degree of Operating Leverage (CM/ NOI) Break-even Point in Units (FE/CM per unit) Break-even Point in Sales (BEP units* SP per unit) Margin of Safety (Selling units-BEP units) Margin of Safety as a Percentage of Sales (MOS/Sales)

1.47 64 28896.35 136 67.89

4125.00 1041.67 10925.33

100000 90000

Cost and revenue (TK)

80000 70000 60000 50000

Sales Fixed cost Total cost

40000 30000 20000 10000 0 0

50

100

150

No. of boxes of cookies

Figure 1:Graph of CVP Analysis

14 | P a g e

200

250

Interpretation: 1. The degree of operating leverage (DOL) shows the contribution margin (CM) as a proportion of net operating income (NOI). The DOL is 1.47 which means that a change in sales by 1% will change the NOI by 1.47% because %Change ∈ NOI =%Change ∈sales X DOL And, according to the current economic condition, where the economy has slowed down due to a pandemic outbreak, such a figure of DOL may not be good for the business because a fall in sales will reduce the NOI by almost 1.5 times the fallen sales. In that case, a small fall in sales may make the business expect a significant loss. 2. The breakeven point (BEP) in units shows how many units are to be sold to cover the total fixed expenses and the variable expenses for those specific units sold. Here, the BEP in units is 64 boxes of chocolate cookies whereas the total sales units are 200 boxes of chocolate cookies. This implies that the business is left with quite a lot than half of its sales revenue to generate profit which can have been used to support the business financially during times of low profit in the foreseeable future of the business if it gets hit by lower demand of its products for any reason. 3. The margin of safety (MOS) in units shows the units to be sold to generate profit after all the fixed expenses are covered. The MOS as a percentage of sales is around 68% and 136 boxes of chocolate cookies in units. This means that more than two-thirds of the total sales revenue generates profit. As a result, a fall in demand of products may lead to lower profit but not loss.

15 | P a g e

8.Conclusion We did our project on a specific food item of, Grameen Sweetmeats, Bakery& Foods Limited and the item is Chocolate Cookies. We chose chocolate cookies because it is one of the popular items and it is very much commonly popular as a food item from a very wide range of target market due to good quality maintenance. We got sufficient information according to our needs from Grameen Foods executive director. The Manager and the other employees really showed a very cooperative and helpful behavior. Here, after having all the necessary information, we did our calculation. Then we got a conclusion that Grameen Sweetmeats already is making a feasible and profitable income from chocolate cookies. Through our alternative scenario, we showed if Grameen Sweetmeats increases their production of this item, they can earn more profit from it because there is a high demand of Chocolate cookies among the customers but insufficient supply of it. By following our alternative idea, Chocolate cookies can be a more profitable sector for Grameen Sweetmeats, Bakery & Foods Limited.

References

1. Personal interview taken by group [MD. Najmul Hasan (Rony), Executive director of the Grameen sweetmeats bakery & foods Ltd.] 2. https://www.youtube.com/watch?v=7MxlVMzRxa8

16 | P a g e

Appendix “Grameen sweetmeats” chocolate cookies:

17 | P a g e

Visiting card of our interviewee: 18 | P a g e

.

19 | P a g e...