Unit 5 Capital Budgeting Individual Project

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Business Finance

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Key Assignment Description from Week 4:

Develop a company and determine what it will produce and sell. The requirement for this company is that it be a high-end, special-order type of manufactured product. Complete the following in a Word document of 1,000 words:

  • Develop a list of inputs along with their associated costs, such as labor, materials, and overhead. You can research this information, make it up, or do a combination of both. Be specific as to costs.
  • You are to determine the selling price. Show your calculations, and discuss why you have determined this to be a good sale price.
  • How many items of your product will you need to produce to meet this sale price? How did you calculate this?
  • Determine which of the costing systems discussed in this class will work best for your company. Explain why.
    • Explain why those not chosen were not a good fit for your company. 
    • You must explain "why not chosen" for a minimum of 3 costing methods.
  • Please devote at least 1 paragraph to the ethical considerations of costing methods.

Assignment Guidelines:

  • Add a section to your paper, outlining how you would implement capital budgeting in your company.
  • Prepare an example of a decision that you would make using either the IRR or Payback method of analysis. Why would you use this for your business?

I HAVE ATTACHED MY UNIT 4 INDIVIDUAL PROJECT THE ONLY NEW THINGS SHE IS ASKING IS WHAT IS UNDER THE ASSIGNMENT GUIDELINES I THINK!!!!

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1 U4IP Running head: U4IP Unit 4 Individual Project Cost Accounting Professor Leanne Janis 2 U4IP Abstract ABC Apparel is the name of the company that specializes in the large scale production of customized clothing. Main product that the will company offers is customized t-shirts. The business offers a great opportunity for people to have their tops designed according to their needs and taste. People with events that require customized clothing can therefore benefit from this company among other potential consumers in the market. The business undertaken by the company requires a great investment as well as creativity to beat the competition in the market. The following paper will develop a list along with associated costs such as labor, materials, and overheads. The total production cost will be determined so as to help in identifying the right selling price for the product. The company aims at making a certain percentage of profit per every piece sold. Calculations of how the selling price will be arrived at are also indicated in the paper with an explanation of why it is a good sale price. The number of items to be sold to meet the sale price will also be discussed. The costing system that works best for the company will be discussed. Ethical considerations of the costing methods will also be discussed. The paper will cover cost allocation that will show whether the company makes profits or losses. 3 U4IP Introduction to Product ABC Apparel Company is a company seeks to offer the market it serves customized tshirts that can be used in different events. Sportspersons, kids, adults, and professionals can all use the product. Extensive catalog graphing images will be employed on the t-shirts as well as the use of high quality technology of sublimation that will make them unique in the market. To gain competitive advantage, innovation will be prioritized in the designing process as it is the central business value of the venture. Several ways that will be used to produce the high-end tshirts include embroidery, screen, and digital printing. The production process will occur in a rented space in a warehouse which will also be ideal for storage purposes. The business will have a website where customers can view different customizations and make orders. Once the order and a down-payment of 30% of the total purchase cost are received, production and customization will be done. Products will be shipped to customers 2-7 days after placing an order and it will be determined by complexity as well as the number of items required. Product Inputs Different equipment will be required to ensure production of high-end customized t-shirts. Screen printing; cost per screen is $12 ❖ Sublimation heat press machine $ 200 ❖ Direct to Garment (DTG) production require a computer and a printer which both cost $250 ❖ T-shirt printing dye $ 6 per t-shirt (Variable cost) ❖ Salaries of employees (Variable cost) ❖ Management salary (Fixed cost) ❖ Rent of the building (Fixed cost) 4 U4IP ❖ Electricity (Variable cost) Selling Price with Calculations (COGS + SG&A + markup) Mark up is the difference between the selling price of a product and its cost. Cost of goods sold refers to the total direct expenses incurred in production of the product or service. Manufacture of a cotton t-shirt with accessories costs $3.00. The production processes factors in labor, electricity, and dye or printing costs $18 per unit of all high-end t-shirts. Selling, General and Administrative Expenses (SG&A) that will be factored in the cost price of the product include: Variable costs Electricity $1 per unit Labor per unit $8 Printing/customization materials $ 9 per unit COGS is $21 The company aims at making a 15% markup on the sale of each unit. Selling price therefore= x-21/21=0.15 Selling price = $24.15 per unit Calculate Break Even Point Breakeven point is a point where total costs of product are equal to total sales or revenue. Breakeven point per unit is calculated by dividing total fixed costs by the price per unit less the variable cost per unit. Total fixed costs per month include: Rent= $100 Salaries= $300 5 U4IP Total variable costs amount to $ 21 Selling price= 24.5 Breakeven point= $400/ (24.15-21) = 126.98 Breakeven point (roundup) = 127 units Determine Costing Method w/Explanation As shown above, costs have been classified into two; variable and fixed costs. The costing method is referred to as marginal costing. In marginal costing, variable costs are charge to unit costs attributable to the relevant period. The costs are also written-off in full against the contribution for that specific period. The main reason for using marginal costing is because it makes it easy to determine and control costs of production. Fixed overheads are not charged to the costs of production using this method thus eliminating the cost variance per unit (Labro, 2019). Marginal costing facilitates short term decision making as it allows a business to see the viability of a business through the profits and therefore identify areas that can be changed to realize desired results. It is also a simple and easy process that a business can adopt. Absorption costing was not applied in this because it makes it difficult to conduct a cost volume analysis as it takes into consideration fixed overheads involved in the manufacturing process. Absorption costing is not an effective way of monitoring the profitability of a firm (Collis, & Hussey, 2017). In this case, profitability is paramount to determine the viability of the business in its initial stages of formation. Standard costing method was not also applied in this case because of its complexity as well as the resources required to implement the costing method. Standard costing involves identifying the differences between the actual costs of the goods produced and the costs that have occurred for actual goods produced. It is mainly used to determine variances and which is not the focus in this case. 6 U4IP Possible Ethical Issues w/Costing Method Cost accounting process involves identifying, measuring, and communicating the economic information of a business for the main reason of decision making. Ethics plays a major role in cost accounting correct identification, classification, and recording to costs to avoid manipulation that can be aimed in understating or understating costs for different purposes. Ethics ensures that factual information is provided to users and that correct pricing is done. Ethics also help the management to understand how much it cost to run a business (Al-Hebry, & Al-Matari, 2017). The right costing method to be applied should be consistent with the activities of the business as well as its goals and objectives. Some of the essential features of a good costing system include being tailor-made, simple and able to meet the requirements of a business. Failure to meet the objectives of the business means that the costing method will not provide reliable information and which in this case is unethical as it will mislead the users of the information. 7 U4IP References Al-Hebry, A. A., & Al-Matari, E. M. (2017). A Critical Study of Cost Approaches in the Accounting Thought: Conceptual Study. International Review of Management and Marketing, 7(3), 105-112. Collis, J., & Hussey, R. (2017). Cost and management accounting. London, U.K: Macmillan International Higher Education. Labro, E. (2019). Costing Systems. Foundations and Trends® in Accounting, 13(3-4), 267-404.
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