BUSINESS ACCOUNTING

Business Accounting



New Business Development

Introduction

Today, soap has been an integral part of the society and it is difficult to visualize a time when people were used to utilize perfume rather than soap in order keep them sweet-smelling. Currently, soap has been used as a cleanser or perfume.

Soap Manufacturing industry in UK developing new products and expanding to emerging markets in response to steep competition and high demand. In 2012, the industry is expected to 10%, representing improvement from 2011.

Hence, Soap has become the necessary item of our daily lives. The consumption of soap is used as an indicator to measure the index of civilization. The development of this product is a function of the rate of population growth and rising living standards.

Hence, this paper focuses on the production of the soap which will target everyone and considering other factors.

Discussion

Overview of the Company

Bella-Nat is a new company that manufacturers various bar and liquid hand soaps and shower gels. The product launches include P&A shower gel and bar soap, P&A Spa shower gels, Soft-soap Vitamins shower gel and liquid hand soap.

In order to sell the P&A shower gel and bar soap, P&A Spa shower gels and Soft-soap Vitamins shower gel and liquid hand soap proper distribution channel will be adopted so that it can be available to each corner of the country.

The most important factors for Bella-Nat to survive in this industry are:

Having marketing expertise

Ensuring pricing policy is appropriate

Economies of scale

Generate brand loyalty

Development of new products

Supply contracts in place for commodity inputs

The following is the estimation provided Bella-Nat

Bella-Nat

Production capacity

400,000 units

Sales

345,000 units

Selling price

£29.00 per unit

Variable manufacturing cost (direct material: $3.50 and direct labor: $1.40) per unit

£4.90 per unit

Variable operating/selling cost per unit

£1.20 per unit

Total fixed manufacturing overhead:

 

P&A shower gel and bar soap

£400,000

P&A Spa shower gels

£400,000

Soft-soap Vitamins shower gel

£400,000

Liquid hand soap

£400,000

 

£1,600,000

Total fixed selling & administrative expenses:

 

Advertising Campaign

£750,000

Market Research

£450,000

 

£1,200,000

Unit Cost Under Full Costing

Direct Materials Cost per Unit

3.5

Direct Labor Cost Per Unit

1.4

Variable Manufacturing Cost Per unit

4.9

Fixed Manufacturing Overhead Per unit

 

P&A shower gel and bar soap (400000/400000)

1

P&A Spa shower gels (400000/400000)

1

Soft-soap Vitamins shower gel (400000/400000)

1

Liquid hand soap (400000/400000)

1

Total Fixed Manufacturing Overhead Cost

4

 

 

Total Cost Per Unit

£8.90

It is expected that the sales will increase 5% in the next two months while in forth month the sale will increase with 10%. Moreover, as this is a new company, the fixed selling expenses would be the same for next six months (Davis C., Davis E., 2011, pp. 268).

Bella-Nat

Income Statement

Quarterly 2012

Absorption Costing Income Statement

 

 

March

April

May

June

Sales (345000 units×$29 per unit)

 

£10,005,000

£10,505,250

£11,030,513

£12,133,564

 

 

 

 

 

 

Less cost of goods sold:

 

 

 

 

 

 

 

 

 

 

 

Add Cost of goods manufactured (400000units×$8.9 per unit)

£3,560,000

 

£3,560,000

£3,560,000

£3,560,000

Goods available for sale

£3,560,000

 

£3,560,000

£3,560,000

£3,560,000

Cost of Goods Sold

£3,560,000

 

£3,560,000

£3,560,000

£3,560,000

 

 

 

 

 

Gross Margin

 

£6,445,000

£6,945,250

£7,470,513

£8,573,564

Variable Selling (345000 units x1.20)

£414,000

 

£414,000

£414,000

£414,000

Fixed Selling:

 

 

 

 

 

Advertising Campaign

£750,000

 

£750,000

£750,000

£750,000

Market Research

£450,000

 

£450,000

£450,000

£450,000

Total Fixed selling expenses

£1,200,000

 

£1,200,000

£1,200,000

£1,200,000

 

 

£1,614,000

£1,614,000

£1,614,000

£1,614,000

Net Operating Income

 

£4,831,000

£5,331,250

£5,856,513

£6,959,564

 

 

 

 

 

 

Selling Price

29

Variable Cost

 

Direct Materials Cost per Unit

3.5

Direct Labor Cost Per Unit

1.4

Variable Manufacturing Cost Per unit

4.9

Total Variable Cost

9.8

Break Even Point

Break Even Point

Fixed Costs / (selling price - variable costs)

Break Even Point

1200000/(29-9.8)

Break Even Point

62500

Break Even Analysis of New Product

The point at which Bella-Nat products received is equal to total ...