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Subject Determining the cost of a product

Course Code ACT202

Course Name Introduction to Managerial Accounting
Semester Fall 2018
Section 11
Instructor Md. Tariqul Hoque

Submitted by
Submitted to
Name ID
A B M Sheril Sarwar 1812762630 Md. Tariqul Hoque
Kazi Shiratut Taz 1811804630 Lecturer, North South University
Md. Mohsin Islam Sajol 1812835630 Department of Accounting & Finance
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To:
Md. Tariqul Hoque
Lecturer
Department of Accounting & Finance
School of Business and Economic
North South University

Subject: Submission of the Accounting 202 Report on the product Corrugated Box, manufactured
by I.N.S Printing & Packaging Industries

Honorable Faculty,
We are hereby submitting our group project for the course ACT202 after exercising maximum
effort and learning considerable knowledge.

The main purpose of the report was to calculate the cost of the ‘Corrugated Box’, product of I.N.S
Printing & Packaging Industries. The production plant mainly features the advanced packaging
technology prepress, creative graphic design, offset printing, water-base coating, UV coating, die
cutting, embossing, patching and gluing. By scheduling proper interview sessions and extensive
discussions with the owner of I.N.S Printing & Packaging Industries, Mr. Imran Mahmud, we have
gained considerable knowledge regarding the industry and have carried out all the required
calculations and research regarding their product.

It is our sheer hope that our submission is accepted gracefully and this report will merit your
approval.

Yours sincerely,

Md. Mohsin Islam Sajol

Kazi Shiratut Taz

A B M Sheril Sarwar
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Acknowledgement

I would sincerely like to convey my thanks and gratitude to our esteemed Act 202 faculty, Md.

Tariqul Hoque, without whom this report would not have been possible. His supportive words

and instructions provided us the necessary guidelines to complete and present this report. Our

heartfelt appreciation goes out to Mr. Imran Mahmud, Owner of I.N.S Printing & Packaging

Industries. His utmost cooperation as well helped us to complete the report with maximum

precision and principle.

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Table of Contents

ACKNOWLEDGEMENT __________________________________________________________ 4

EXECUTIVE SUMMARY __________________________________________________________ 6

PRODUCT DETAILS _____________________________________________________________ 7

PRODUCTION PROCESS _________________________________________________________ 8

COST AUTOPSY _______________________________________________________________ 9

Cost Identification _____________________________________________________________________________ 9

Cost of Goods Manufactured ____________________________________________________________________ 11

PROFIT MARGIN ______________________________________________________________ 12

PRICE OF THE PRODUCT________________________________________________________ 12

CVP ANALYSIS _______________________________________________________________ 13

Net Income __________________________________________________________________________________ 13

Determining CM & BEP ________________________________________________________________________ 14

Trends of Cost-volume-profit ___________________________________________________________________ 15

FORECASTING SALES TREND ____________________________________________________ 17

APPENDIX___________________________________________________________________ 18

Cost-volume-profit graph _______________________________________________________________________ 18

Forecasting Sales Trend Graph __________________________________________________________________ 19

Images ______________________________________________________________________________________ 20
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Executive Summary

The report comprises of very specific and resourceful details of the following content of I.N.S
Printing & Packaging Industries Ltd.’s production: ‘Corrugated Box’
✓ Product Details

✓ Production Process

✓ Cost Autopsy

✓ Cost of Goods Manufactured

✓ Profit Margin

✓ CVP Analysis

✓ Trends of Cost-volume-profit

✓ Forecasting Sales Trend

Queries aroused from the report can be negotiated from the Appendix provided near the end of
the report. Required Images have been provided as per requirements.
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Product Details
I.N.S Printing & Packaging Industries Ltd. Produces ‘Corrugated Box’ also popularly known as
‘Carton Box’ which is the most popular shipping container these days. Packing of Chemicals,
Drugs, Tobacco, Canned & Bottled Goods, Fruits, Vegetables, Glassware, Medical Instruments,
Potteries, Footwear, Gadgets are heavily done by Corrugated fiber box.

Name Corrugated Box

Shipping Container
Usage
Packaging materials of goods
Kraft Paper
Adhesives (Glue, Water, Ink, Chemicals)
Raw Materials
Stitching Wire
Binding Cloth
Single Faced / 2 Ply
Double Faced / 3 Ply
Types
Triple Faced / 5 Ply
Multi faced / 7 Ply
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Production Process
Corrugated Box manufacturing process is highly machine intensive. Multiple machine is used to
manufacture Corrugated Box. Kraft paper roll / flat sheet is the initial material which is used in
Paper Feeder. Then, the paper goes through corrugator machine. After the paper being corrugated,
all the corrugated papers go through a sheet cutting machine. Glue, Silicate is used as indirect
material for pasting process. After the pasting and sheet pressing, Kraft paper and liner is being
creased and slotted. Finally, Stitching wire is used to stitch the whole box as finished product.

Paper
Feeding

Corrugating

Sheet
Cutting

Pasting

Creasing &
Slotting

Stitching

Finished
Product
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Cost Autopsy
Different kinds of cost incurred in the process of producing Corrugated Box is stated below in
groups. Most of the costs produced in the tables are directly collected from the company owner.
However, some costs are assumed or altered as the company does not follow any costing method
and failed to give specific costs.

Cost Identification

Direct Material
Serial Description Unit Price Cost
Number (TK)
1. Kraft Paper 4.50 2,25,000
2. Liner 2.50 1,25,000
Total 7.00 3,50,000

Indirect Material
Serial Description Unit Price Cost
Number (TK)
1. Silicate 0.35 17,500
2. Painting Ink 0.33 16,500
3. Stitching Wire 0.15 7,500
Total 0.83 41,500

Direct Labor
Serial Description Quantity Rate Labor Hours Cost
Number (Person) (Per Hour)
1. Machine 19 29.48 208 1,16,500
Operators
Total - - - 1,16,500

Indirect Labor
Serial Description Quantity Cost
Number (Person)
1. Supervisor 1 15,000
2. Clerk 1 8,500
3. Delivery Man 1 10,000
Total - 33,500
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Manufacturing Overhead
Serial Description Unit Price Cost
Number (TK)
1. Factory Cost: 1.00 50,000
▪ Electricity
▪ Repairs & Maintenance
▪ Rent
2. Depreciation: 0.20 10,000
▪ Factory
▪ Machine & Equipment
3. Indirect Materials 0.83 41,500
4. Indirect Labors - 33,500
Total - 1,35,000

Fixed Costs
Serial Description Cost
Number
1. Factory Rent 35,000
2. Salary & Wage of Administrative Employees 33,500
Total 68,500

Variable Costs
Serial Description Quantity Unit Price Cost
Number (TK)
1. Electricity (Peak Hour) 1667 (kWh) 15 25,000
Electricity (Off Hour) 1,000 (kWh) 10 10,000
2. Direct Materials 70,000 (Units) 7 350,000
Indirect Materials 70,000 (Units) 0.83 41,500
3. Direct Labors 208 (Hours) - 1,16,500
4. Delivery Expense - - 31,500
Total - - 5,74,500

Indirect Costs
Serial Description Cost
Number
1. Rent 35,000
2. Repairs & Maintenance 2,000
3. Electricity 35,000
4. Adhesives 34,000
Total 1,06,000
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Cost of Goods Manufactured

Using all the costs determined in the Cost Autopsy section, a Schedule of Cost of Goods
Manufactured is produced below to determine the total costs and per unit cost. They produced
70,000 Units of Corrugated Box in the month of November

I.N.S PRINTING & PACKAGING INDUSTRIES LTD.

SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE MONTH ENDED IN NOVEMBER, 2018

Direct Materials

Kraft Paper 2,25,000

Liner 1,25,000

3,50,000

Direct Labor 1,16,500

Manufacturing Overhead
Indirect Material 41,500
Indirect Labor 33,500
Factory Cost 50,000
Depreciation 10,000
1,35,000
# Cost of Goods Manufactured 6,01,500

# Per Unit Cost

8.59
(6,01,500/70,000)

From the Schedule of Cost of Goods Manufactured, we found that total 6,01,500TK is incurred to
produce 70,000 Units of Corrugated Box & Per Unit Cost of each corrugated box is 8.59TK.
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Profit Margin

Profit Margin is a profitability ratio which is commonly used my businesses to identify the
profitability of several business activity. It clearly shows that how much profit did the company
make for each amount of sales price. Large companies usually compute profit margins for their
company by keeping pace with a standard reporting timeframe. But in case of I.N.S Printing &
Packaging Materials Ltd, they don’t follow any standard reporting period. Rather, they calculate
their profit margin monthly or per order basis.

Profit Margin = 1 - Net Income / Net Sales

= 1 – (60,755 / 7,03,755)
= 1 – 0.09
= 0.91

So, we can conclude from this calculation that I.N.S Printing & Packaging Materials managed to
generate 0.91 TK for every per 1TK worth of sale.

Price of the Product

I.N.S Printing & Packaging Industries Limited does not follow any specific method to determine
the price of the product. They simply markup the Costs of Goods Manufactured to certain
percentage which will generate necessary profit for the survival of their company in the current
market.

Selling Price = Cost of Goods Manufactured + (Cost of Goods

Manufactured * Desired Markup / Total Units Produced)
= 6,01,500 + (6,01,500*17% / 70,000)
= 6,01,500 + (1,02,255 / 70,000)
= 7,03,755 / 70,000
= 10.05 TK

So, the Selling Price for each Corrugated Box is 10.05TK which is 17% markup of Per Unit Cost
of each Corrugated Box which is 8.59TK
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CVP Analysis
Net Income
Income Statement of I.N.S Printing & Packaging Industries Ltd. Is produced below to determine
Contribution Margin and Net Income which will help us in the process of Cost-volume-profit
Analysis. Contribution Format Income Statement is produced below:

I.N.S PRINTING & PACKAGING INDUSTRIES LTD.

CONTRIBUTION FORMAT INCOME STATEMENT
FOR THE MONTH ENDED IN NOVEMBER, 2018

Sales Revenue (6,01,500 + 17% Markup) 7,03,755

Less: Variable Costs:

Electricity (Peak Hour) 25,000

Electricity (Off Hour) 10,000
Direct Materials 350,000
Indirect Materials 41,500
Direct Labors 1,16,500
Delivery Expense 31,500
5,74,500
# Contribution Margin 1,29,255
Less: Fixed Costs:
Factory Rent 35,000
Administrative Salary 33,500
68,500
# Net Income 60,755

From the Contribution Format Income Statement, we found that the net income or profit of I.N.S
Printing & Packaging Industries Ltd. for the month of November is 60,755TK.
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Determining CM & BEP

Now we can calculate Contribution Margin, Break-Even Units & Break-Even Revenue using the
data from Contribution Format Income Statement.

Contribution Margin = Sales – Variable Costs

= (7,03,755 – 5,74,500)

= 1,29,255

Contribution Margin = Contribution Margin / Sales

Ratio
= (1,29,255 / 7,03,755)

= 0.18

Breakeven Point = Fixed Costs / Unit Contribution Margin

= Fixed Costs / (Sales Per Unit – Variable Costs Per Unit)

= Fixed Costs / (Total Sales Unit – Variable Costs Per Unit)

= Fixed Costs / {(Total Sales / Unit) – (Total Variable Costs / Unit)}

= 68,500 / {(7,03,755 / 70,000) – (5,74,500 / 70,000)}

= 68,500 / (10.05 – 8.21)

= 68,500 / 1.84

= 37,229 Units

Breakeven Revenue = Fixed Costs / Contribution Margin Ratio

= (68,500 / 0.18)

= 3,80,556 TK
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Trends of Cost-volume-profit

Changes of Units, Sales Revenue, Variable Costs, Contribution Margin & Net Income is produced
below in the table:

Units Sales Revenue Variable Contribution Fixed Net

Costs Margin Costs Income
0 0 0 0 68500 -68500
1500 15075 12315 2760 68500 -65740
3000 30150 24630 5520 68500 -62980
4500 45225 36945 8280 68500 -60220
6000 60300 49260 11040 68500 -57460
7500 75375 61575 13800 68500 -54700
9000 90450 73890 16560 68500 -51940
10500 105525 86205 19320 68500 -49180
12000 120600 98520 22080 68500 -46420
13500 135675 110835 24840 68500 -43660
15000 150750 123150 27600 68500 -40900
16500 165825 135465 30360 68500 -38140
18000 180900 147780 33120 68500 -35380
19500 195975 160095 35880 68500 -32620
21000 211050 172410 38640 68500 -29860
22500 226125 184725 41400 68500 -27100
24000 241200 197040 44160 68500 -24340
25500 256275 209355 46920 68500 -21580
27000 271350 221670 49680 68500 -18820
28500 286425 233985 52440 68500 -16060
30000 301500 246300 55200 68500 -13300
31500 316575 258615 57960 68500 -10540
33000 331650 270930 60720 68500 -7780
34500 346725 283245 63480 68500 -5020
36000 361800 295560 66240 68500 -2260
37229 380556 312056 68500 68500 0
37500 376875 307875 69000 68500 500
39000 391950 320190 71760 68500 3260
40500 407025 332505 74520 68500 6020
42000 422100 344820 77280 68500 8780
43500 437175 357135 80040 68500 11540
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45000 452250 369450 82800 68500 14300

46500 467325 381765 85560 68500 17060
48000 482400 394080 88320 68500 19820
49500 497475 406395 91080 68500 22580
51000 512550 418710 93840 68500 25340
52500 527625 431025 96600 68500 28100
54000 542700 443340 99360 68500 30860
55500 557775 455655 102120 68500 33620
57000 572850 467970 104880 68500 36380
58500 587925 480285 107640 68500 39140
60000 603000 492600 110400 68500 41900
61500 618075 504915 113160 68500 44660
63000 633150 517230 115920 68500 47420
64500 648225 529545 118680 68500 50180
66000 663300 541860 121440 68500 52940
67500 678375 554175 124200 68500 55700
69000 693450 566490 126960 68500 58460
70500 708525 578805 129720 68500 61220
72000 723600 591120 132480 68500 63980
73500 738675 603435 135240 68500 66740
75000 753750 615750 138000 68500 69500
76500 768825 628065 140760 68500 72260
78000 783900 640380 143520 68500 75020
79500 798975 652695 146280 68500 77780
81000 814050 665010 149040 68500 80540
82500 829125 677325 151800 68500 83300
84000 844200 689640 154560 68500 86060

From the table, we found that when the production level is equal to zero, there is no variable costs
as well as no sales revenue, making the contribution margin zero and net loss of 68500 which
happened because of monthly fixed costs.
When the production level reached to 37229 units, it reached to the break even point having 0 net
loss / income. From this point, Net income will keep increasing as the production level will keep
its growth.
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Forecasting Sales Trend

Forecasting of sales can be useful for volatile industries which market share changes in one night
drastically. Sales forecasting helps managers to prepare Production Budget. Production Budget
will eventually help the manager to produce other budgets such as, Direct Material Budget, Direct
Labor Budget, Manufacturing Overhead Budget etc. I.N.S Printing & Packaging Industries Ltd is
beginner in the packaging industries. Sufficient past data is not available as they joined the industry
recently. So, we tried to forecasts sales trend based on linear statistics method. Sales trend from
the month of February-2018 to the month of January-2019 is produced below:

Period Month Sales Unit % Changes

1 February 15000 -
2 March 15000 +000%
3 April 16000 +006%
4 May 21000 +031%
5 June 25000 +019%
6 July 35000 +040%
7 August 25000 -014%
8 September 50000 +100%
9 October 60000 +002%
10 November 70000 +016%
11 December 67000 -004%
12 January 74000 +010%

I.N.S Printing & Packaging Industries Ltd started their business in February-2018. They started
their production with few orders & their sales started to rise because of heavy marketing effort.
Their sales growth is positive throughout the year expect some minimal decrease of 14% in
August-2018. Based on their past data, we can forecast that the sales will decrease in December
by 4%, but will increase in January by 10%.
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Appendix

Cost-volume-profit graph
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Forecasting Sales Trend Graph

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Images

▪ Interview with the Owner of I.N.S Printing & Packaging Industries

ABM Sheril Sarwar, Imran Mahmud (Owner), Md. Mohsin Islam Sajol, Kazi Shiratut Taz (From left)

▪ Insider of Factory