MANAGEMENT ACCOUNTING

Set Up A New Business

Set Up A New Business

Section A

The business which I have chosen to set up is related to the industry of Arts. Name of the company is United King Art & Stationery (UKA&S). The products which are chosen to produce as the products of the organization are paint and paint brushes. Since these two are complementary goods there is greater possibility that the customers will buy both of the products at the same time which will help to generate more revenue resulting more profits. Generally in London it is seen that people who are art conscious or who are in the field or art will prefer to use high quality paint and paint brushes for their art works. Since the quality required by the artists is high therefore they will be wiling to pay more for that product, but it should be kept in mind that these customers will not compromise on the quality of goods. Therefore, the pricing strategy which is chosen is skim pricing techniques which focuses on niche market with high quality products in high. Our paint brush category will include Artists, Modelling & Songwriters' brushes. In London normally Songwriters' paint brush price is £ 3.37, Artists brush price is £ 2.50 and modelling brushes price is £ 2.80. Since we are working on skim pricing we will be charging more from our customers so that they can get best quality.

Supplier

Name: Ken Bromley Art Supplies

Website: http://www.artsupplies.co.uk

Product: Hair for paint brushes

Competitor

Name: Premier Brushes (Brushes)

Website: http://www.premierbrush.co.uk

Name: My Perfect Colour

Website: www.myperfectcolor.com/

Section B

Calculations

Cost of production per brush (Artists)

Labour £.15

Material cost £1

Packaging cost £.25

Overhead expenses £.15

Marketing Exp £.35

Selling Exp (Including the expenses of outlet) £.25

Total Cost £ 2.15

Profit 50%

Price per brush £ 3.225

Above calculations are to support our decision of target selling price of company's product. One brush is only taken to illustrate the profit percentage and costing methodology of our organization. More than one product is not illustrated due to through research which is involved in the pricing of these products. Since the target market is niche therefore the profit percentage is more as large percentage of cost is to maintain the quality and also on the selling, marketing and packaging of the brushes i.e. £.85 This shows that the company is concern with the quality and it is not only focusing on increasing the revenue and profit. Customer will only buy their product if the will get good quality and after sales service. In case if UKA&S has to initially market there product their breakeven point is £2.15 which is price for some of the good paint brushes that are available in the area of London.

The profit amount of UKA&S is £1.075.

Estimated number of units to be sold throughout the year will be 23,000

At an average the company has to keep about 15% of the units in the inventory for future which makes around 3,450 units. The company will have to produce 26,450 units in its first year.

Calculate the variable production cost (£)

Direct materials £1

Direct ...