LAUNCH OF A NEW BUSINESS

Advance Management Accounting and Performance Management

Advance Management Accounting and Performance Management

Background

The study is related to the launch of new business to Hackney Council. The products of the business will be based on the decorative items such as Furniture, Sofas, armchairs and beds. The business will provide quality products for achieving the customer satisfactions. Furthermore, there is a scope of this business; however, the competition of these products is high in London, but there are bright chances of having a successful business.

Discussion

Target Selling Price

The two most important factors for the success of business are to respond to the customers' demands and learning from the past mistakes. Offering quality products at low prices and put local people first in the way of conducting business should be the main strategy. The relative positioning of the market share of business with esteem to other premier players in the London market should be based on penetration strategy. Urban Chic will be offering products with the differentiation, so the customers get attracted towards the products of business that are Furniture, Sofas, armchairs and beds; due to the features and specifications. However, the pricing should be focused as the in the penetration strategy the Urban Chic has to have low prices compare to the competitors as there are various competitors in London. Therefore, the target selling price will range from £ 150 to £ 220, depending on the type of product, also the competitors' price.

Per Unit Cost Statement

Unit Cost

Total Cost

Direct Materials

Various

£ 70.00 £ 70.00

Direct Labor

2 hour

£ 10.00 £ 20.00

Manufacturing overhead

2 hour

£ 28.00 £ 56.00

Total Unit Cost

£ 146.00

Budgeted Income Statement

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Sales

£ 432,000

£ 1,000,050

£ 1,500,450

£ 1,750,450

£ 2,000,450

£ 2,250,450

£ 2,500,450

Direct Cost of Sales

£ 301,600

£ 725,000

£ 1,087,500

£ 1,212,500

£ 1,337,500

£ 1,462,500

£ 1,587,500

Gross Margin

£ 130,400

£ 275,050

£ 412,950

£ 537,950

£ 662,950

£ 787,950

£ 912,950

Expenses

Payroll

£ 78,000

£ 157,000

£ 195,000

£ 225,000

£ 255,000

£ 285,000

£ 315,000

Sales and Marketing and Other Expenses

£ 45,680

£ 40,500

£ 46,500

£ 52,500

£ 55,500

£ 57,500

£ 63,500

Utilities

£3,000

£ 4,000

£ 5,000

£ 6,000

£ 7,000

£ 8,000

£ 9,000

Insurance

£ 1,140

£ 1,290

£ 1,440

£ 1,590

£ 1,740

£ 1,890

£ 2,040

Rent

£ 8,400

£ 8,900

£ 9,400

£ 9,900

£ 10,400

£ 10,900

£11,400

Payroll Taxes

£ 11,700

£ 12,300

£ 12,900

£ 13,500

£ 14,100

£ 14,700

£ 15,300

Total Operating Expenses

£ 147,920

£ 223,990

£ 270,240

£ 308,490

£ 343,740

£ 377,990

£ 416,240

Profit Before Interest and Taxes

(£ 17,520)

£ 51,060

£ 142,710

£ 229,460

£ 319,210

£ 409,960

£ 496,710

Interest Expense

£ 4,000

£ 4,800

£ 5,600

£ 6,400

£ 7,200

£ 8,000

£ 8,800

Net Profit

(£ 21,520)

£ 46,260

£ 137,110

£ 223,060

£ 312,010

£ 401,960

£ 487,910

Recommendations

According to the past studies, it is observed and proved that the organizational behaviors are influenced by various factors. Therefore, for the business it is important to have the controlled expenses of the business, moreover, the cost of raw material cannot be reduced, but the other cost that include factory over head, labor cost can be controlled, which can minimize the cost of the business. Organizational strategy is a systemic concept, made up of essential parts which are independently distinguishable but which together forms a new and better strategy which ultimately affect the whole organization in terms of efficiency and effectiveness of the organizational productivity. In relation to this, it is vital and essential ...