Group name: Aqua Man

MEMBERS NAME ID
Md Jubair Al Roman 1530847030
Abdullah Al Mamun 1521681630
Jubair Ahmed 1520877030
Mohammad Younus 1631798030
Fahim Ahmed 1520235630
Md. Naimur Rahman Lizon 1632015030
Manufacturing process
Step 1: For manufacturing the product first we purchase all the
materials like glasses, white stones, coloured stones, head cover,
wallpaper, coloured light, tree, glue etc.
Step 2: After that we made the aquarium frame with the glasses we
purchase.
Step 3: Then we pour water in the glass frame to check if there is any
outflow. If it is fine then we clean the frame carefully.
Step 4: Later cleaning is done then we fit the wallpaper in the backside
of the aquarium.
Step 5: Then we set up the lights& we put the stones, tree.
Step 6: Finally, we fit the head cover and our product is ready for sale.
Working Hours

Number of labors worked = 6 labors

Per day working hours = 8 hours
Total working day in a month = 24 days
Total working hour per day (6*8) = 48 labor hours
One unit of product needs 30 minutes or 0.5 labor hour for 6
labors
Maximum production per day (8/0.5) = 16 units per day
Maximum production per month (16*24) = 384 units
Production cost
Direct material Taka
5mm glass(5pics*60) 300
Stones (0.5kg*50) 25
Tree (1pics) 40
Colored stones (0.5kg*80) 40
Colored light 120

Head cover 110

Oxygen pump 152.5

Pipe (2.5ft*5) 12.5
Total DM per unit 800
Total DM cost (800*384) 307200
Direct Labour (DL)
• Our total labour hour for 384 units is 192hours (192*0.5). Number of
total labours is 6. Per hour wage rate is 50 taka.
• Total labour hours = 384 units*0.5 DLH/unit
= 192 DLH
• Per employee will get = 50 taka per labour hour
• DL cost for per unit (6 employee) = 0.5DLH*6*50
= 150tk
• Total DL cost for 384 units = 192*6*50
= 57600tk
• Direct labour wages will be compensated on hour basis. 
Manufacturing Overhead (MOH)
Variable MOH
• Sharp less Stones (250*10) = 2500 taka
• Glue (32*220) = 7040 taka (1 Glue = 12 Aquarium; 384/12 =
32 Glue)
• Water bill = 500 taka
• Electricity bill = 1000 taka
• Total Variable MOH = 11040 Tk
Manufacturing Overhead (MOH)

Fixed MOH:
• Factory rent = 12000
• Supervisor salary = 8000
• Design = 3000
• Marketing = 2000
• Factory maintenance cost = 5000
• Total Fixed MOH = 30000 Tk
Support Cost
• HR Salary = 15000
• IS Department = 5000
• Total Support Cost = 20000
Selling Cost
• Shop rent = 9000
• Shop keeper Salary = 8000
• Telephone bills = 300
• Electricity bill = 800
• Miscellaneous Cost = 1000
• Internet Bill = 600
• Total Selling cost = 19700
  Analysis of costs

Cost Details Types of Cost

Direct Material Direct, Variable Cost

Direct labour Direct, Variable Cost

MOH
Glue Indirect, Variable

Water Bill Indirect, Variable

Sharpless Stones Indirect, Variable

Electricity Bill Indirect, Variable

Factory rent Indirect, Fixed

Supervisor Salary Indirect, Fixed

Factory maintenance cost Indirect, Fixed

Analysis of costs
Cost Details Types of Cost
Supportive Cost
HR Salary Indirect, Fixed
IS Salary Indirect, Fixed

Selling Cost
Shop Rent Indirect, Fixed

Shop keeper Salary Indirect, Fixed

Electricity Bills Indirect, Mixed

Telephone Bills Indirect, Mixed

Marketing Indirect, Fixed

Design Indirect, Fixed

Analysis of costs

• Prime Cost = DM+DL

= 307200+57600
= 364800
 
• Conversion Cost = DL+MOH
= 57600 + 41040
= 98640
Allocation base and unit production cost:
Full cost allocation
Production Cost Taka

Direct Material 307200

Direct labour 57600

Variable MOH 11040

Fixed MOH 30000

Selling Cost 19700

Support Cost 20000

Total Cost 445540

Production cost (384 Units)
Items Total Cost taka Per Unit Cost taka

DM 307200 800

DL 57600 150

MOH (192 DLH) 41040 106.88

Total 405840 1056.88

Breaking Down Supportive Department cost
  Supporting Dept. Operating Dept. Total taka

  HR IS Sales Manufacture  
Cost incurred 15000 5000 19700 405840 445540
Allocation of HR (15000) 3000 3000 9000  
(15000×1/5; 1/5; 3/5)

    8000      
Allocation of IS   (8000) 1846 6154`  
(8000×300/1300;  
1000/1300)

Total 0 0 24546 420994 445540

ABC costing
Activities Cost driver Amount of cost driver Total cost Activity rate Reason
behind
selecting
cost driver
DM No of unit produced 384 units 307200 800 per unit  

DL No of labour hours 192 DLH 57600 300 per DLH  

6 labour

Sharpless stone No of unit produced 384 units 2500 6.5 per unit  

Glue No of unit produced 384 units 7040 18.33 per unit Glue consumed
by Unit produced
Water supply No of labour hour 192 DLH 500 2.6 per DLH Water consumed
by labour hour

Electricity No of labour hour 192 DLH 1000 5.21 per DLH Electricity
Consumed
by labour hour

Factory Rent Square feet 1200 sq. Feet 12000 10 per sq. feet Rent increased by per sq. feet of space

Supervisor salary No of unit produced 384 units 8000 20.83 per unit Supervisor
Salary consumed
by production
unit
Design     3000 -­  
Marketing  Revenue   2000 5%  5% of seals revenue

Factory Maintenance No of unit produced 384 units 5000 13.02 per unit Maintenance
Cost increased
by Production unit
Total     405840    
Unit production cost under ABC costing
Activities Activity rate Total taka
DM 800 per unit 800
DL 300 per DLH*0.5 DLH 150
Sharpless stone 6.5 per unit 6.5
Glue 18.33 per unit 18.33
Water supply 2.6 per DLH*0.5 1.3
Electricity 5.21 per DLH*0.5 2.61
Factory Rent (10@1200 Sq. feet)/384 31.25
Supervisor salary 20.83 per unit 20.83
Design ­- 7.81
Marketing 5% 100
Factory Maintenance 13.02 per unit 13.02
Total   1151.65
Our unit production cost under simple and ABC costing is same.
Product line profitability analysis
• Selling price per unit is 1700tk
Income statement under simple costing
sales (370 units @1700) 629000

Cogs (@ 1151.65) (426110.5)

Gross profit 202889.5

Support and selling cost (39700)

Operating profit 163189.5

Operating profit margin=( operating profit\sales revenue)

=(163189.5\629000)
=25.94%
Income statement under ABC costing
sales (370 units @1700) 629000

Cogs (@ 1151.65) (426110.5)

Gross profit 202889.5

Support and selling cost (39700)

Operating profit 163189.5

Operating profit margin=( operating profit\sales revenue)

=(163189.5\629000)
=25.94%
Pricing strategy
• Our product is Artificial Aquarium. It is a decorative product for
household or for office room. We are new in the market. And we
are going to lounge this type of artificial Aquarium in the market
for the first time. This innovative product will be completely new
and modified for our customer. But in our business, we have huge
indirect competitors’ pressure that is established Aquarium shop
in the market.
• For that reason, we have to consider market-based pricing system
but as our product is completely new in market so that we also
have scope to consider cost-based pricing system. So that for our
product we will use mixed pricing system considering market and
cost
Pricing strategy
• Cost per unit = 1151.65
• Other cost per unit including support and selling cost it 107.29
• Total cost = (1151.65 + 107.29) = 1258.94
• Targeted profit margin 25.94% (1258.94 * 25.94%) = 326.57

Total cost per unit 1258.94

Targeted profit margin 326.57

Mark up 6.73% (1258.94 +326.57 * 6.73%) 106.70

Selling price 1700 (rounded up)

Forecasting
As a new business with new product, it is hard for us to
forecast actual demand. So, from market analysis we
estimate that our business can sell up to 370-unit
product this month. So, on the basis of demand our
Master Budget are as follow:
 Sales Budget
  Units Selling price Total

Sales 370 1700 629000

production Budget
Budgeted sales 370 units
+ Targeted ending inventory (10% of sales) 37 units

Total units need to be produced 407 units

 Direct material uses budget
Physical units (407 units) Total Quantity of DM to be used Total
5mm glass (5 * 407 units) 2035 pieces @ 60 tk/pieces 122100
Stone 1 packet (1* 407 units) 407 packet @ 25 tk /packet 10175
Tree 1 pieces (1* 407 units) 407 pieces @ 40tk/pieces 16280
Coloured stone 1 packed (1* 407 407 packed @ 40tk /packed 16280
units)

Coloured light (1* 407 units) 407 pieces @ 120/ pieces 48840
Head cover 1 pieces (1 * 407 units) 407 pieces @110 tk/pieces 44770
Oxygen pump 1 pieces (1 * 407) 407 pieces @ 152.5tk/ pieces 62067.5
Pipe 2.5 feet (2.5 feet @ 407 units) 1017.5 feet @ 5tk/ feet 5087.5
Total DM to be used   325600
 Direct material purchase budget
DM to be used   325600
Targeted Ending Inventory (12%    
of the usage)

5mm glass (2035 pics. * 12%) 244.2 pieces @ 60 tk/pieces 14652

Stones (407 packets * 12%) 48.84 packet @ 25 tk /packet 1221
Tree (407 pics. * 12%) 48.84 pieces @ 40tk/pieces 1953.6
Coloured stones (407 packets * 48.84 packed @ 40tk /packed 1953.6
12%)

Coloured light (407 pieces * 48.84 pieces @ 120/ pieces 5860.80

12%)

Head cover (407 pics. * 12 %) 48.84 pieces @110 tk/pieces 5372.40

Oxygen pump (407 pics. * 12%) 48.84 pieces @ 152.5tk/ pieces 7448.10
Pipe (1017.5 feet *12%) 122.1 feet @ 5tk/ feet 610.5
Total   364672
 Direct labor cost budget
  Total Unit Hours per Total Hour No. of Wage Rate Total
unit labour

labour 407 0.5 203.5 6 50 61050

 Manufacturing overhead budget
Variable MOH Amount Total
Sharpless Stones 2500  
Glue 7040  
Water Bill 500  
Electricity Bill 1000  
    11040
Fixed MOH    
Factory Rent 12000  
Supervisor Salary 8000  
Design 3000  
Marketing 2000  
Factory Maintenance cost 5000  
    30000
Total Budgeted MOH   41040
Budgeted MOH rate =( 41040/203.5)
=201.67
MOH per unit =(41040/407)
=100.84/unit
Unit manufacturing cost to finished goods
DM    
5mm glass 300  
Stones 25  
Tree 40  
Coloured stones 40  
Coloured light 120  
Head cover 110  
Oxygen pump 152.5  
Pipe 12.5  
Total DM per unit   800
DL   150
(0.5DLH*6Labor*50tk.)
MOH per unit   100.84
Unit cost to Finished Goods   1050.84
 Ending Inventory budget
DM Unit Cost Per unit (Taka) Total
5mm glass 244.2 pieces 60 14652
Stones 48.84 packet 25 1221
Tree 48.84 pieces 40 1953.6
Coloured stones 48.84 packed 40 1953.6
Coloured light 48.84 pieces 120 5860.80
Head cover 48.84 pieces 110 5372.40
Oxygen pump 48.84 pieces 152.5 7448.10
Pipe 122.1 feet 5 610.5
Total DM ending   672.5 39071.20
inventory

Targeted finished goods 37units 1050.84 38881.08

inventory

Total Ending inventory     77952.28

 Cost of goods sold budget
Items Details Total (Taka)

DM 370Units@800 296000

DL 370units*0.5*6*50tk 55500

MOH 370units *100.84tk 37310.8

Total COGS   388810.8

 Budgeted Income Statement
Items Per unit cost Total
Sales (370 units) 1700 629000
Less: COGS (1050.84) (388810.8)
Gross profit 649.16 240189.20
Less: Selling & admin. expense    

Shop rent (9000/370) 24.32  

Shop keeper Salary (8000/370)  
Telephone bills (300/370) 21.62
Electricity bill (800/370)  
Miscellaneous Cost (1000/370) .81
Internet Bill (600/370) 2.16
Total Selling cost (19700/370)  
HR Salary (15000/370) 2.70
IS Department (5000/370) 1.62
   
53.24
40.54
 
13.51

Total Selling & admin. expense (160.52) 39700

Operating Profit 488.64 200489.20

 Contribution Margin Format
Items   Total Per unit
Sales 370 629000 1700
Variable Cost      
Variable MOH 10637.5    
DM 296000    
DL 56084    
Telephone Bills 300    
Electricity 800    
    (363821.5) (983.30)
Contribution Margin   265178.5 716.69
Fixed cost      
Factory rent 12000    
Marketing 2000    
Supervisor Salary 8000    
design 3000    
Factory maintenance cost 5000    
 
MOH Fixed Cost 19700    
    (49700) (134.32)
Operating Profit   215478.5 582.36
Contribution Margin Format
A traditional margin income statement uses absorption or
full costing, where both variable
and manufacturing costs are included when calculating the
cost of goods sold. In other hand
the contribution margin income statement uses variable
costing which means fixed
manufacturing costs are assigned to overhead costs and
therefore not included in product
costs. That’s why there is different figure in the operating
incomes.
Evaluation
Break-even point in unit sales and in revenue
 
Break Even point in unit =FC/CM Per unit
=49700/716.69
= 69 units
Our Business ‘Aquarium House’ needs to sell 69 unit of ‘Artificial Aquarium’
per month to cover all the expenses.
CM ratio = CM/Sales
=716.69/1700
=.42 or 42%
Break Even Revenue (in Taka) = FC/CM ratio
= 49700/.42
= 118333
We need to earn at least of Tk 118333 from our sale to cover all the expenses.
Margin of Safety = Total Budgeted Sale – Break Even Revenue
= 629000 – 118333
= 510667
Margin of Safety in Percentage = MOS/Budgeted Sales
= 510667/629000
= 81.19%
Up to 81.19% of our sales level can fall before reaching our break-even point

Comment: Margin of safety (MOS) help a business to find out the risk level
of the business or product. High MOS indicate low risk level and lower MOS
indicate higher risk level of the product. Our margin of safety is 510667Tk
and MOS percentage is 81.19%. Means, if our sales decline by 81.19% from
our budgeted sale, then still we will be in our Break-even point. So, as a new
product our product ‘Artificial Aquarium’ is in good position.
Sensitivity Analysis
Degree of Operating Leverage (DOL)= CM/NOI
= 716.69/582.36
= 1.23 times
 
Operating leverage is also known as Risk-return trade off. OL determine the
effect that fixed cost have on changes in operating income with the changes
of contribution margin and unit sold. Business with high fixed cost have high
Operating leverage. The result of OL 1.23 times means change of 1% in sales
and contribution margin will result only 1.23% changes in operating profit.
From this result we can conclude that on our operating income there is more
influence of variable cost then fixed cost.
Scenario: (A)
15% increase in the demand of the product
% change in profit = % change in sales * DOL
= .15*1.23
= .1845 or 18.45%
If our demand increases by 15% then our profit will increase by 18.45%.
  Scenario (B)
20% decrease in demand of the product
% change in profit = % change in sales * DOL
= (.20) * 1.23
= (.246) or 24.6%
 If our demand decreases by 20% then our profit will also decrease by 24.6%.