Ann-Marie has started her own business making and selling snacks for consumers with food intolerances. At the moment all the production is labour oriented, and products are sold only in London via a range of small corner shops, and coffee shops.
Ann-Marie is a nutritionist by profession and has no Management Accounting knowledge. She seeks your help with preparing a budget for the next period and you have gathered the following details relating to her business.
Ann- Marie’s business is in its first year of trading, and produces and sells a single product- a chocolate coated cake bar that’s free from nuts, eggs, and gluten.
Inputs required per bar:
Ingredient 1 = 10g at a price of £ 4.00 per kg =0.12
Ingredient 2 = 10g at a price of £ 6.00 per kg= 0.05
Ingredient 3 = 15g at a price of £3.00 per kg = 0.04
Ingredient 4 = 5g at a price of £12.00 per kg = 0.05
- Packaging – The cake bar is individually packed and the cost of the individual packing is £0.10 per unit. Other packaging such as boxes cost £0.08 per pack.
- The overhead costs are
- Power heating and lighting approximately £1000 per month
- Rent is £5,000 per month
- The business has one employee paid £800 per month
- All other production overheads are variable and charged at £0.15 per unit.
Ann-Marie informs you that next year sales are likely to be 480,000 bars, at a selling price of £1.50 per bar. Ann-Marie explains to you that ideally she would like her business to make a £15,000 profit next year.
Write a 2,500 word report to Ann-Marie discussing the following:
- A comparison between Management Accounting and Financial Accounting clearly explaining the role of each within the business.
- An explanation of cost classification, including the methods and importance of classification.
- An explanation of Marginal costing, and absorption costing. In particular your report should explain the main differences between the two costing systems the usefulness of each.
- A marginal costing profit statement based on the information provided, and calculations of the breakeven point in units, breakeven sales, target sales based on the expected profit, and margin of safety, explain their meaning to the owner and also their usefulness including any limitations.
- Details of any assumptions you may have made.