MANAGEMENT ACCOUNTING

Complementary Products



Complementary Products

Introduction

The mankind is always been found of art work and the painting has primary importance in this field. This report will cover a business plan of selling two identical complementary products. The products which are chosen to be sold under this business plan are paint brush and oil paint. The research is conducted in the area of London and the research results demonstrate that the prevailing price of the oil brush in market is £ 3.11 to 3.45. There are different types of oil brush in market and the quality of each type is different than the other. There are different categories which can be named as P33, P33A, P32, P34C and P34. The given price range covered all these categorize of oil brushes. Under this business plan, the company will offer all these categories of oil brushes at a single price. This will make the product attractive to the customers and the single price policy will also served as competitive advantage (www.premierbrush.co.uk).

On the other hand, the prevailing price of the oil paint in London's market is £ 22 to 25.50. The company will offer oil paints for the market of beginner and amateur. It is a fact that the trend of joining the painting field is increasing. The products oil brush and oil paint are related to each other and the demand of one product (Oil Brush) will generate the demand of other product (Oil Paint). The products are related to art work. There are plenty of new admissions in this field and people who do painting as their habit. The painting is also a mean of stressing out the creativity of any person (www.artifolk.co.uk).



Products Positioning

The company will sell Oil Brush at price of £ 3.00 for each piece while the price of the oil paint will be £ 20. The calculation of the unit cost statement shows that the product will remain beneficial to the company even if company offers product at relatively lower price (Kleiner, & Abrams, 2003, pp 56).

Cost Statement

The cost statement for Oil Brush is given below:

Unit Cost Statement

Particulars

Product A

Oil Brush Amount in £

Variable Rental Expense per unit

0.27

Total Rental Expense

40,000

Variable Manufacturing Expenses per unit

0.83

Total Manufacturing Expenses

125,000

Variable Labour Expenses per unit

0.57

Total Labour Expenses

85,000

Marketing & Selling Expenses

30,000

Factory Overhead

45,000

Total cost

325,000

Number of unit produced

150,000

Per Unit Cost

2.17

The unit cost statement for Oil Paint is given below:

Unit Cost Statement

Particulars

Product B

Oil Paint Amount in £

Variable Rental Expense per unit

1.29

Total Rental Expense

45,000

Variable Manufacturing Expenses per unit

10.00

Total Manufacturing Expenses

350,000

Variable Labour Expenses per unit

2.80

Total Labour Expenses

98,000

Marketing & Selling Expenses

40,000

Factory Overhead

55,000

Total cost

588,000

Number of unit produced

35,000

Per Unit Cost

16.80

Breakeven Point

The breakeven point for Oil Brush is as follow:

Breakeven point

Particulars

Oil Brush Amount in £

Net revenues

159,000

Variable Cost per unit

28,440

Fixed Cost

130,000

The breakeven point for Oil Paint is as follow:

Breakeven point

Particulars

Oil Paint Amount in £

Net revenues

215,000

Variable Cost per unit

34,400

Fixed Cost

180,000

Budgeted Marginal Income Statement

The five year income statement is prepared as per the rules and regulations of marginal costing principle.

The income statement for the Oil Brush is given ...