BUACC5933 Cost and Management Accounting Report Sample

BUACC 5933 COST AND MANAGEMENT ACCOUNTING

Assignment Details

This assignment requires your group (up to 3 members) to develop and design a product (not service) of your choice. It might be an existing product that your take on with necessary improvement OR a new product that does not exist in the market. You need to undertake R&D activities to determine the design, characteristics, and functions of your product, calculate the related upstream and downstream costs, and provide an explanation as to why you want to produce this product. Then, you need to identify and determine your product's production and downstream costs for a specific number of units manufactured. You also need to determine the price of your product and how it will be marketed. Finally, a presentation is required to provide information about your product and how your product can attract potential customers to make profit.

Required:

1. Design your product and provide it a name and a description and visual/picture of it (this can be your own drawing or an image from the internet with your brand/logo assigned to the image). Justify your choice by explaining in detail the reasons why you select your product (i.e., is there a demand for it? will it solve any social, environmental or financial issues? etc.). How do you incorporate the contemporary sustainability issue into your product? What is your vision for the selected product?

2. Estimate the product’s Research and Development (R&D) and Design costs (as you will be undertaking the R&D, building a prototype, testing the product. You should assign yourself an hourly wage rate based on market research and keep a record of the activities and how many hours it took you to design your product. This will determine your R&D and Design costs). Provide detailed explanations about your R&D processes/steps and how the selected product is manufactured.

3. Conduct market research (i.e., search the internet, field research) to identify, estimate and determine the costs of your product's direct materials, direct labour, and manufacturing overhead (fixed and variable). Clearly list and determine how much and types of materials, labour and other manufacturing resources will be required to produce one unit of your product and calculate your product’s cost per unit. Explain the approach used to calculate the overhead cost per unit and clearly differentiate/list fixed and variable manufacturing overheads.

4. Upon the nature of your product, in 100 words, identify and justify appropriate type of product costing procedure (job versus process costing, or combination). Please note that you must be consistent with your choice for costing the selected product in the following questions.

5.a. During June, let’s suppose that the cost of your beginning inventory was $20,000 and ending inventory equalled $8,000, and you purchased materials to produce 500 units of your product. Calculate the cost of direct materials purchased and used in production in June. (Note that, from question 5 to 9, you can adjust the units sold to 1,000 depending on a prospect about your product)

5.b. During June, the cost of your beginning work in process was $5,000, and ending was $10,000. Calculate the cost of goods manufactured using a cost of goods manufactured statement/schedule (for 500 units of your product) in June.

5.c. During June, the cost of your beginning finished goods was $30,000 and ending finished goods equalled $15,000. Prepare a cost of goods sold statement for the month of June for 500 units produced and sold to customers.

6. Conduct market research to identify and estimate your downstream activities and th related costs (i.e., marketing, packaging, handling, storing, distribution and so forth). Explain how you will market and distribute your product in detail.

7. Determine the price of your product per unit and explain in detail how you determine the selling price (i.e., cost-plus or customer value-based pricing, see Pricing strategies, chapter 8 of Weygandt et al. (2018).

8. Prepare an income statement (using absorption costing) for the month of June given that 500 units were sold. Your administrative expenses in June totalled $6,000, and the Australian company tax rate is 30%. Include all other relevant expenses for the month of June.

9. Work in group and use Kaltura Capture or Microsoft Teams to create a professional presentation video with PowerPoint in 5 minutes to present the required information fromnthe above questions (excluding questions 5 and 8). The required presentation’s purpose is tonprovide main reasons why your product has a potential market.

Please note the following:

• Required submissions: Report (word limit: 600 words per student in a group, excludingreferences and tables) + 5-minute Oral presentation video.

• Report format: using Word or PDF

Standard layout: The first page of your report should be a cover page with the subject code, your name and student ID number and the name of your product. The second page should be a table of contents. The body of the report will include the requirements above (1-9) and each requirement needs to be clearly numbered. The last page should include your reference list in alphabetical order. You need to include references for the resources you used and referred to as part of your market research to determine your products costs, price etc. The report needs to be page-numbered and presented in a professional and well-formatted manner. Please ensure to provide full and correct statement headings with month and year for the cost of goods manufactured statement, cost of goods sold statement and income statement.

Reference style: APA (please refer to the library resource if you need guidance with this referencing style via https://federation.edu.au/library/student-resources/fedcite).

Solution

PART 1: Product Selection and Justification

In this study, my colleagues and I explore product design and price utilizing "Whimsical Lights." We intend to present a complete analysis of this product's creation method and financial elements to demonstrate management accounting's importance in today's competitive company environment. Management accounting guides our product design and costing, as we will show. It helps us organize, supervise, and make educated decisions, assuring Whimsical Lights' viability in a fast-changing industry.

As the name implies, Whimsical Lights are unique lighting fixtures that lend magic to any room. These beautiful lights blend eco-friendly materials with artistic designs, matching our sustainability goals (Putra & Primadani, 2023). Sustainability in our product addresses environmental problems while providing users with an eco-friendly lighting option (Cenci et al. 2022). Whimsical Lights are more than simply items to us. They can reduce energy use and inspire curiosity through appealing designs. This report will detail our choices, planning strategies, and financial impacts as we conceived, designed, and priced Whimsical Lights. Our discussion of product design and costing will emphasize their importance in today's competitive corporate environment.

PART 2: Research and Development (R&D) and Design Costs
Explanation of R&D Processes/Steps

Figure: R&D Allocation to Product Costs
Source: https://www.linkedin.com/pulse/spreading-rd-across-your-product-cost-reflect-reality-rich-buttrey

R&D, an essential stage in product design, is where our adventure to bring Whimsical Lights to life begins. R&D includes a number of careful procedures and steps designed to help us bring our vision to life. It entails significant study to comprehend market demands and technology potential, conceptualization, and brainstorming. We entered the domain of prototype creation after each idea had been polished and tested for MBA Assignment Expert .

Calculation of R&D and Design Costs

As we started on this thrilling journey, we realized how crucial it was to accurately account for our R&D and design costs. Based on market research, we set an hourly wage rate and meticulously recorded the time spent in the design phase to come up with these expenses. We were able to quantify our R&D and design expenses accurately because of our thorough record-keeping, which made sure every dollar was tracked.

Details of Prototype Development and Testing

The phase of prototype development was one of the most exciting parts of our adventure. In order to ensure the operation, toughness, and safety of Whimsical Lights, necessitated the construction of physical models, design revisions, and extensive testing. This procedure required supplies, labourers with particular training, and sophisticated machinery. We were able to calculate the costs involved with prototype development by carefully tracking the materials used and the labour hours put in. Our commitment to producing a better product prompted us to carry out numerous rounds of testing while enhancing our designs. This iterative process increased expenditures while also enhancing the value and distinctiveness of Whimsical Lights. In the parts that follow, we will go into greater detail on the financial elements, illuminating how these R&D and design expenses affect our product's overall pricing and viability. Come learn about the complex world of product creation and its financial ramifications with us.

PART 3: Unveiling the Cost of Whimsical Lights
Market Research for Direct Materials, Direct Labor, and Manufacturing Overhead

Figure: Manufacturing Overhead‘
Source: https://www.wallstreetmojo.com/manufacturing-overhead/

In order to determine the costs of raw materials, labor, and manufacturing overhead, our project to manufacture Whimsical Lights required in-depth market research. To find the most precise numbers, we searched suppliers, haggled prices, and carefully examined labor rates (Lo et al. 2022). According to our market analysis, direct materials, which include eco-friendly components, cost $15 per unit. Direct labor costs $10 per unit, with trained artisans creating each light.

Breakdown of Direct Materials, Labor, and Overhead Costs

We have outlined the charges in the following manner to help you comprehend the cost structure:

Direct Materials: Each item is $15
$10 for direct labour per unit

Cost per Unit of the Product Calculation

We calculated the overall direct expense for one unit of Whimsical Lights to be $25 by adding the direct labour and direct material prices.

Explanation of Overhead Cost Allocation (Fixed vs. Variable)

We used a hybrid technique to allocate overhead costs, taking into account both fixed and variable parts. Rent for our manufacturing location and equipment depreciation were two examples of fixed overhead expenses that totalled $5 per unit. It was found that $3 per unit will be spent on variable overhead costs, such as energy used in manufacturing and expenses associated with quality control.

Table 1: Cost Breakdown for Whimsical Lights

PART 4: Choosing the Right Costing Procedure for Whimsical Lights

Justification for Job Costing

Unique Customization: Each Whimsical Light is a one-of-a-kind work of art that is tailored to the various tastes of our customers. Job costing ensures precise costing and cost allocation by properly lining up with our need to record specific expenditures for each light.
Variability in Resources and Labor: Depending on the complexity of the design and level of personalization, the materials and labour needed for each Whimsical Light can differ greatly. By using job costing, we can precisely break down the costs while capturing these variations.

Hybrid Approach

Whimsical Lights largely uses job costing, although we admit that there are some production processes that can benefit from using process costing. For instance, quality control is a common component that may be handled as a standardized procedure. We preserve adaptability and effectiveness while ensuring precise allocation of costs for our one-of-a-kind, handcrafted products by using this hybrid technique.

PART 5: Nurturing Whimsical Lights:

Tracking Production Costs Calculation of Direct Materials Purchased and Used in Production

We carefully recorded the cost of all direct materials that were bought and used in manufacturing for Whimsical Lights in June to ensure accurate cost management.

Figure: Total Manufacturing Cost Formula
Source: https://www.inflowinventory.com/blog/total-manufacturing-cost-formula/

We built 500 units using direct materials at a cost of $15 each, according to our market study. As a result, the cost of natural resources used and acquired in June came to:

Table 2: Calculation of Direct Material Costs

Cost of Goods Manufactured Statement for June

Following that, we created a "Cost of Goods Manufactured" (COGM) statement for the month of June that included the 500 units produced. Direct labour, direct materials, and manufacturing overhead are only a few of the elements that make up the cost of manufacturing that are broken out in the COGM statement.

Table 3: Cost of Goods Manufactured Statement

Cost of Goods Sold Statement for June

The cost of the 500 units sold throughout the month of June is reflected in a "Cost of Goods Sold" (COGS) statement that we created. The COGS statement takes into account the cost of producing the goods as well as any changes to the inventory of finished goods.

Table 4: Cost of Goods Sold Statement

The COGS statement discloses that the 500 units that were sold in June had a cost of goods sold of $31,500, which helped our total financial performance.

PART 6: Navigating Whimsical Lights Downstream:

Marketing and Distribution

Market Research for Downstream Activities

Our involvement with Whimsical Lights extends beyond production and includes downstream operations essential to getting our product in front of customers. We did in-depth market research to discover the essential elements and expenses related to marketing, packing, handling, storing, and distribution in order to maximize our strategy.

Explanation of Marketing, Packaging, Handling, Storing, and Distribution

Marketing: Whimsical Lights will be promoted using a number of outlets, such as social media, e-commerce sites, and regional artisan fairs. To raise brand awareness and draw in potential customers, we have budgeted for internet marketing, influencer relationships, and promotional events.

Packaging: A key component of how we showcase our products is its packaging. We have selected eco-friendly and aesthetically pleasing packing materials that reflect Whimsical Lights' commitment to environmental preservation.

Handling and Storing: For the storage and delivery of our goods, we have teamed up with a reputable logistics provider. Through this arrangement, consumers are delivered promptly and safely while incurring fewer warehousing-related overhead expenditures.

Distribution: Our distribution strategy is set up to reach both domestic and foreign markets. We want to increase market penetration and client accessibility by using effective distribution channels.

Detailed Marketing and Distribution Plan

Our marketing strategy is a user-friendly website that showcases Whimsical Lights' originality and beauty. Instagram and Pinterest will be used for social media marketing to visually engage our audience. Working with local craftspeople and eco-conscious individuals will help us reach niche consumers. We'll distribute through e-commerce giants and small boutiques for a smooth purchasing experience. We're also considering eco-friendly delivery methods that match our product's sustainability.

PART 7: Illuminating the Path to Pricing Success:

Whimsical Lights Strategy

Determining the Selling Price

Whimsical Lights' pricing strategy must strike a careful balance between paying costs, preserving profitability, and providing value to clients. We investigated two basic price options after figuring out our production expenses, which come to $33 per unit.

Explanation of Pricing Strategy (Cost-Plus or Customer Value-Based)

Cost-Plus Pricing: Whimsical Lights' pricing strategy must strike a careful balance between paying costs, preserving profitability, and providing value to clients. We investigated two basic price options after figuring out our production expenses, which come to $33 per unit.

Customer Value-Based Pricing: Whimsical Lights' mission is to transform living rooms into distinctive, magical settings through lights. We performed surveys and market research to learn how our customers perceived our product in order to fully capture the value we provide to them. We arrived at a pricing threshold that is in line with what consumers are ready to shell out for the aesthetic and environmental advantages Whimsical Lights provide.

PART 8: Illuminating Financial Performance:

Whimsical Lights Income Statement

Preparation of Income Statement using Absorption Costing

Income Statement

Table 5: Income Statement

Inclusion of Administrative Expenses

Our choice to invest in expansion and customer pleasure, even at the beginning, has resulted in a gross loss of $7,000 as seen on our income statement. We understand how crucial it is to pay the $6,000 in administrative costs for the month. These costs cover necessary services including office administration, marketing, and customer service.

Calculation of Company Tax at the Australian Tax Rate

We calculated a tax bill of $3,900 based on our income before tax and the 30% Australian corporate tax rate. This investment in the expansion of our business and goods is in line with our long-term goal, even though the initial statement of finances may indicate a net loss. 

References

Cenci, M. P., Scarazzato, T., Munchen, D. D., Dartora, P. C., Veit, H. M., Bernardes, A. M., & Dias, P. R. (2022). Eco‐friendly electronics—a comprehensive review. Advanced Materials Technologies, 7(2), 2001263. Retrieved on: 8th September, 2023 Retrieved From: https://doi.org/10.1002/admt.202001263

Fitzsimmons, J. A., Lass, D., Minifie, K., & Kinchla, A. J. (2023). Financial feasibility of selling frozen produce in local and regional markets. Renewable Agriculture and Food Systems, 38, e29. Retrieved on: 8th September, 2023 Retrieved From: https://www.cambridge.org/core/journals/renewable-agriculture-and-food-systems/article/financial-feasibility-of-selling-frozen-produce-in-local-and-regional-markets/A88ECD56EF402A7D054EBD2FE6766C06#metrics

Lo, D., Zanarone, G., & Ghosh, M. (2022). Contracting to (dis) incentivize? An integrative transaction‐cost approach on how contracts govern specific investments. Strategic Management Journal, 43(8), 1528-1555. Retrieved on: 8th September, 2023 Retrieved From:https://doi.org/10.1002/smj.3376

Putra, W. W., & Primadani, T. I. W. (2023, April). Upcycling bicycle parts for interior decoration with smart lightings as an eco-friendly design. In IOP Conference Series: Earth and Environmental Science (Vol. 1169, No. 1, p. 012064). IOP Publishing. Retrieved on: 8th September, 2023 Retrieved From: https://doi.org/10.1088/1755-1315/1169/1/012064