Group Name: ABC

ACT-333
Section:01
Project Topic: Implication of the mechanics of
Managerial Accounting
on a product

Product Name: Birds House

Course Instructor: Afrin Rifat (Ani)
GROUP MEMBERS INFORMATION
No
Name
1
Md.Miraj Hossen
2
Sakib Md. Shafiuddin
3
Tariqul Islam
4
Md. Al Mamun

ID
1210744030
1320413030
1320456030
1311210630

LETTER OF TRANSMITTAL

August 9 ,2015
Mrs. Afrin Rifat
Course Instructor
ACT 333, Section 1
School of Business, North South University

Subject: SubmissionofGroupReport
Dear Madam:
It is our pleasure to submit this report, which is a part of this course: ACT 333
(Managerial Accounting). While accomplishing this project we had to start a
manufacturing company from scratch and manufacture our selected product i.e. Birds
House. In doing so we had to set a price of our product, determine various costs, allocate
these costs and prepare budgeted financial statements. Moreover we had to conduct
detailed analysis e.g. margin of safety, break-even analysis and sensitivity analysis for
given situations. All these activities have corroborated our accounting concepts to a
significant extent. In our report we have included all relevant calculations and supporting
information. We sincerely hope that this report will fulfill the requirements suggested by
you for the course ACT 333.
Sincerely Yours

Md.Miraj Hossen
Sakib Md. Shafiuddin
Tariqul Islam
Md. Al Mamun

ABSTRACT
This report is aimed to exhibit major accounting practices used by a company for which
we had to open a new manufacturing company and manufacture our selected products. In
the Introduction of the report reasons behind selecting the product has been described.
The next section Birds House Industry Birds House about the competitors of the
company. This section is followed by Manufacturing Process which gives a precise
description of how our selected product i.e. Birds House has been manufactured. In the
next section, we have showed a calculation of maximum number of units that will be
produced in a month for which we have assumed that, we, the members of the group are
only available labors. Production cost of the product includes Direct Materials Cost,
Indirect Materials Direct Manufacturing Labor Cost, and Indirect Manufacturing
Overhead Cost. Based on all relevant and necessary calculations a per House production
cost of 373 TK has been calculated. The support cost to manufacture the product includes
administrative expenses and selling cost includes transportation, advertising and sales
commission. All the costs have been classified in several categories i.e. fixed and
variable, direct and indirect, prime and conversion cost. Each of month birds house
produce 500 house and capacity of the company produce almost 550 house.In the
following sections we have described the costing strategy and pricing strategy that we
have applied. While formulating pricing strategy we have also taken into account the
prices of the products of competing companies. As per project guideline, we have
prepared some forecasted statements i.e. forecasted sales budget, forecasted production
budget, Direct Materials usage budget, Direct Manufacturing Labor budget etc. in the
section entitled Forecasting. While forecasting these, we followed the strategy to keep
15% of the budgeted unit sales as finished goods inventory and 25% of the materials used
in production as ending inventory. Based on the forecasted statements we have prepared
budgeted income statement and budgeted contribution format income statement. This
section is followed by the calculation of Break-even point in both unit sales and in
revenue. Moreover with a view to get an idea about riskiness of the product we have
calculated margin of safety for our product. Based on all the previous calculations, degree
of operating leverage is also calculated. Finally a sensitivity analysis has been conducted
for two different situations i.e. 12% increase and 16% decrease in the demand of the
product.

Table of Contents

1. Introduction
The product we have decided to manufacture is Birds House. It is basically a uses wood,
board, grill ,water pot, food pot etc. The house falls under category and it can be used
both as a show-piece as well as a birds house. It is basically considered as product birds
house which is used to keep our birds. Recently the popularity of usage of birds house
has become quite easy and people find it really interesting to use something that they can
make by their own. Though the house is made of wood, board ,girl but it does not seem
like that because the manufacturing process of the house is quite tricky. The house looks
like a beautiful house and the design of the house is quite unique. Basically we have
found the manufacturing process of the house from internet and it's been same modify by
all group members. The has uploaded the manufacturing process in the internet and we
found it quite enticing and that is why we chose to manufacture the product.

Reasons behind selecting the product

The reason that we have chosen to manufacture the product is that it looks like beautiful
house and lower price product , quite easy to manufacture. Nowadays people more
conscious about your hobby and happiness , so we do believe it would be a good idea to
choose birds house as our product. The market of souvenir is not that much saturated in
our country and most of the products available in the market are imported from abroad.
That is why we have decided to manufacture birds house as we can provide people
something through which they will be able to enjoy country made product. That is why
we have decided to manufacture such a product which can contribute to the society as
well as provide benefit to the company.

2. Industry Analysis
The product of ours belongs to the birds sale stores and gift shop industry. These two
industries are considered as one of the prolific industry in the world as well as in
Bangladesh. The demand for among people is quite high as these things are comparably
cheap to purchase as well as liked by all class of people who lives if birds. In terms of
there is no gender problem as most of the products in these two industries are made for
unisex. The products that belong to industries are gift shop, birds stores, furniture shop
etc . The market of showpiece items is still growing in Bangladesh and in the near future
there is a huge possibility that this market will be the next big thing in the country.

Competitors
The competitors that we have in the market are not in great numbers but not also in small
number either. The main competitor that we have is the Furniture and small birds stores .
This market is dominated by these few stores and they act as a dominant stores in the
industry. In every market there are store items which we also considered as our
competitors. Though the competition seems a bit tougher but we are quite hopeful about
the sustainability of our business. The reason of being optimistic about the product is
because it is being made by using eco-friendly materials and also the design of the
product is alluring. In order to compete with our competitors we will distribute our

products among local birds stores and furniture shop to compete with those branded shop
rather than taking risk of opening up a new store to run the business.

3. Manufacturing Process
In order to make a birds house, the first task is to collect wood . Then after that we need
to cut to wood 2 sq.f. As we cut of wood and board , then we have to .

4. Maximum Productivity

According to the project rule we have to consider our group members as our labor. In our
group we have four members and each of them agreed to work eight hours per day. Also
the labors are willing to work extra two hours each day if they are being paid fifty percent
more than their original wage per hour. To make profit, we need to produce a good
amount of birds house and for that reason we agreed to the proposal. The number of days
the labors will work is twenty six days and every Friday will be a day off for them.
Below is the table that illustrates the maximum number of units we will be able to
produce.

Total
working
hours for
Number of each labor
labors
per day

Total
working
hours by
all the
labor each
day

Number of Total
working
number of
days
working
hours each
month

Number of
hours to
produce
each
house

=10*4
=40

26

10 hours

=26*40
=1040

Maximum
Number of
houses can
be
produce
each
month
=1040/2
=520

Calculationformaximumnumberofunits:
Number of Labors= 4
Total working hours for each labor per day= 10 hours (8 hours+2 hours)
Total working hours by all the labors per day= (10 Hours4)= 40 hours
Number of working day= 26 days
Total number of working hours each month=(26 Hours40)=1040 hours
Number of hours to produce each unit of product=2 hours ( Basically it takes two hours

to manufacture one product by each labor .

Maximum number of units can be produced each month= (1040 Hours2 Hours) =520
units

5. Production Cost Determination

The production cost of our selected product i.e. birds house includes Direct Materials
cost, Direct Manufacturing Labor cost, and Manufacturing Overhead cost. We are
expecting to produce 500 units of products.
Items
wood
Board
girl
Water pot
Food pot
tray
Total

Cost per house of

input
Tk.50
TK.100
TK.50
TK.10
TK.10
TK.20

Input per house of

output
Tk.50
Tk.100
Tk.50
Tk.10
Tk.10
Tk.20

Per cost of direct material Tk.240

CalculationofTotalDirectMaterialCost:

Per house cost of

direct materials
Tk.50
Tk.100
Tk.50
TK.10
Tk.10
TK.20
TK.240

For producing 500 house of birds house in a month,

1)

wood Cost = (Tk.50/house 500house) = Tk.25000

2)

Cost for board = (Tk.100/house 500houses) = Tk.50,000

3)

girl cost = (Tk.50/house 500house) TK = Tk.25000

4)

water pot cost=(Tk.10/house*500 house) Tk.=5000

5)

tray cost=(Tk.20/house*500 house) Tk=10000

6)

food pot=( Tk.10/house*500 house) Tk=5000

TotalDirectMaterialCostperUnit:
=(25000+50000+25000+5000+10000+5000)500=120000500=Tk.240

DirectManufacturingLabor(DML)Cost:
Noof
Labor

Working
hours by
each per
day

Direct
Manufacturin
g labor/day

Total
number
of
working
days

Total
Per hours Total
number of cost Tk
cost/month
working
Tk
in a
month

32

26

=26*32
=832

CalculationofDirectManufacturingLaborcost:

50

41600

Assuming there are 26 working days in a month.

Total Direct manufacturing labor hours in a month = 26 Days 32 Direct Manufacturing
Labor Hours Per Day
= 832
Direct Manufacturing Labor Hours Hence Direct Manufacturing Labor Cost Per month =
(Tk. 50 Per Hour 832 Hours)
= Tk.41600

CalculationOvertimelaborcost:
As we are expecting to produce 500 birds house, so we need our workers to work above
normal working hours.
Numberofunitscanbeproducedbynormalworkinghours:
Total working hours= 2632= 832
working hours in a month Number of hours to produce each unit= 2 hours Number units
can produced if labor works normally= 832 2=416
units Excessive units need to be produced= 500-416=84 units Overtime working hours=
84 units 2 hours=168 hours
Thereare2overtimehoursperworkingdayforwhichthelaborsarepaidatovertimerate
whichis50%higherthantheregularrateofTk.50perhour.
So Overtime Rate = {50 + (50 50%)} Tk = 75 Tk Per hour
So, overtime cost per month= 75 *168=Tk. 12600

CalculationofDirectManufacturingLaborcostperunit:
Total regular Direct Manufacturing Labor Hours

= 832 Hours

Add: Overtime Direct Manufacturing Labor Hours = 168 Hours

Total Direct Manufacturing Labor hour = (832+168) Hours=1000 hours
Total Direct Manufacturing Labor Cost Incurred = [(832 regular hours 50 TK/hour) +
(168 Overtime hours 75 TK/hour)] = Tk.54200

Direct Material Cost Per Unit = 54200/500

Hourly Wage=54200/1000

= Tk.108.4

= Tk.54.2 Per Hour

ManufacturingOverheadCost:
Equipment:
Item
Sellingand
administration

Costperunit
Tk.10

TotalUnits
500

Sellingandadministration(TK.10*500)=Tk.5000

IndirectManufacturingOverheadCosts:
Item
Rent
Utilitybill
Totalcost

CostTk.
Tk.10000
Tk.2000
Tk.12000

TotalManufacturingOverheadCost:
=Total Indirect Manufacturing Cost + Manufacturing overhead cost
= (5000 + 12000) Tk = Tk.17,000
Per Unit Manufacturing Cost = Tk17000/500Tk

= Tk.34

TotalCost
TK.5000

6. Support Cost and Selling Cost

Determination
Item
Selling cost:
Commission (tk 5 per unit of sales 450)
Transporting
Total
Support cost:
Administrative cost
Inventorial cost
Total

Cost Tk
2250
1000
3250
1000
750
1750

7. Cost Classifications
Direct cost
Item
Direct material
Direct manufacture labor
Total Direct cost

Cost Tk( 500 unit)

120000
54200
174200

Indirect cost
Item
gum
alpine
Selling and administrative
rent

Cost Tk (500 unit)

1000
500
5000
10000

Utility bill
colour
Total

2000
3000
21500

Fixed cost
Item
Rent
Utility bill
Administrative expense
Total

Cost Tk.
10000
2000
5000
17000

Variable cost
Item
wood
board
gum
Alpine
Colour
Transportation
Sales commission
Total Cost

Cost Tk.
Tk.25000
Tk.50000
Tk.1000
Tk.500
Tk.3000
Tk.1000
Tk.2250
Tk.82750

Prime cost=(Direct manufacturing labor cost+ Direct material cost)

=Tk. (54200+120000)
= Tk. 174200
Conversion Cost==(Direct manufacturing labor cost+ Manufacturing overhead cost)
= Tk. (54200+17000)
=Tk. 71200

8. Full Cost Determination

FullCost=FixedCost+Variablecost=(17000+82750)=Tk.99750