Introduction
Market research is an effective tool to assist your business planning. It is about collecting information that provides an insight into your customers thinking, buying patterns, and location. In addition, market research can also assist you to monitor market trends and keep an eye on what your competition is doing. In this case study Ceramic Tiles will be our main product of discussion. The product will help us complete our research and development in order to determine the upstream cost, downstream cost for 200,000, the price of the product and how it will be marketed and distributed. The reason on why I chose this product Unlike many other coverings, is they do not become electrically charged when walking over them or as a result of friction (Burgstahler, 2008). So, you won’t feel a little unpleasant spark when you touch the tap.
Ceramic Tiles, Size 10 inch
Apart from the hygiene advantages, the anti-static property is one reason why special, electrically conductive tiles are used in operating theatres. With the harder vitreous tiles in particular, you have to drop something really heavy if you want to scratch the tile. High heels are far less terrifying on glazed-tile floor coverings (Jose M. Framinan, 2014). They withstand high pressure. The floor tile glazes are so hard that even a stiletto heel cannot harm them. Frost-resistant vilbo stone tiles are the ideal floor covering for balconies and terraces. When laid professionally they remain weather resistant. Glazed tiles laid outdoors should be slip-resistant in order to prevent the risk of injury when it’s wet and icy. Due to the larger number of joints, small-format tiles have slip-resistant properties. To optimize the effectiveness of floor heating, there’s hardly anything better than a tiled floor covering since tiles offer good thermal conductivity. Many of the properties named mean that tiles are also a very attractive wall and floor covering from both an ecological and economic perspective.
Body
- Undertake market research (i.e. search the internet) to identify, estimate and determine the cost of your product’s direct materials, direct labour and manufacturing overheads (fixed and variable). Clearly list and determine the quantity and types of materials, labour and overhead that will be required to produce one unit of your product and calculate your products per unit cost. Explain the approach/method and activity level used to calculate the overhead cost per unit and clearly differentiate/list fixed and variable manufacturing overheads.
• Direct materials $161,400
• Utilities $46,000
• Direct labor $ 371,500
• Material handling $26,750
• Purchases $160,400
• Supplies 26,750
• Labour $190,000
• Supplies 37,800
• Freight-in on materials $1,000
• Variable overhead $5,000
• Fixed overhead $6,000
• Fixed selling expenses $15,000
• Variable selling expenses $0.20 per unit
• Administrative expenses $12,000
• 200,000 units produced
• Freight-in on materials $1,000
• Sales price $8 per unit
• Direct labor 371,500
• Material handling 26,570
• Supervision and indirect labor 190,000
• ending inventory 100,000
• Manufacturing overhead 216,850
• Insurance on factory $ 200,000
• Indirect labor 790,000
• Depreciation, factory building 1,100,000
• Depreciation, factory equipment 630,000
• Property taxes on factory 65,000 - During the month of March, the cost of your beginning inventory was $100,000 and ending inventory equalled $100,000, and you purchased materials to produce 200,000 units of your product. Calculate the cost of direct materials purchased and used in production for the month of March.
The cost of direct materials purchased and used in production for the month of March.
Direct materials:
Beginning inventory……………………………. $ 100,000
Add: Purchases …………………………………. …160,400
Freight-in on materials…………………1,000
Materials available………………………………. $261,400
Less: Ending inventory………………………….. (100,000)
Direct materials used………………………….. $ 161,400
Direct labor……………………………………………….. 371,500
Manufacturing overhead:
Material handling………………………………… $ 26,750
Supplies …………………………………………….. 37,800
Utilities ………………………………………………. 46,000
Supervision and indirect labor…………….. 190,000
Total overhead costs ………………………….. 300,550
Total manufacturing costs added ………………. $ 863,450
Add: Beginning work in process………………… 201,000
Less: Ending work in process……………………. (98,000)
Cost of goods manufactured……………………… $ 966,450
- During the month of March, the cost of your beginning work in process was $400,000 and ending was $400,000. Calculate the cost of goods manufactured using a cost of goods manufactured statement/schedule for 200,000 units of your product for the month of March.
The cost of goods manufactured using a cost of goods manufactured statement
Direct materials:
Beginning inventory……………………………. $ 100,000
Add: Purchases………………………………….. 160,400
Materials available………………………………. $260,400
Less: Ending inventory……………………….. (100,000)
Direct materials used in production …….. $ 160,400
Direct labor……………………………………………….. 371,500
Manufacturing overhead……………………………. 216,850
Total manufacturing costs added ………………. $ 748,750
Add: Beginning work in process………………… 400,000
Less: Ending work in process……………………. (400,000)
Cost of goods manufactured……………………… $ 748,750 - During March, the cost of your beginning finished goods was $500,000 and ending finished goods equaled $500,000. Prepare a cost of goods sold statement for the month of March for 200,000 units produced and sold to customers.
Cost of goods sold statement (Horngren, Cost Accounting: A Managerial Emphasis, 13th ed. Upper Saddle, 2009)
Cost of goods manufactured…………………………………………… $ 1,600,000
Add: Beginning finished goods inventory ……………………….. 500,000
Cost of goods available for sale………………………………………. $ 2,100,000
Less: Ending finished goods inventory …………………………… (500,000)
Cost of goods sold…………………………………………………………. $ 1,600,000
7.Determine the price of your product per unit and critically explain how you determined the price (i.e. explain and justify the cost base and pricing method you selected and used, and how your products’ price compares to competitors).
Unit cost = cost of goods sold/ units
Unit cost = 1,600,000/200,000 = $8 per unit
Based on the cost of good sold with the units processed we can get a clear evaluation that 1 tile goes at $8 where as our competitors sell there product at $11 but we still beat them in both the product quality and number of customers we have at the moment.
Market research
- Undertake market research to identify and estimate your downstream activities and costs for your product (i.e. marketing, packaging, handling, distribution and so forth) and explain in detail how you will market and distribute your product.
The packaging system has significant implications in OM. In order to obtain successful management of operations, packaging assumes a fundamental role along the whole supply chain and has to be connected with logistics, marketing, production, and environment aspects. For example, logistics requires the packages to be as easy as possible to handle through all processes and for customers. Once the product is purchased, packages reassure the consumer of a product’s quality and reinforce confidence. Production requires only one size of packaging for all kinds of products in order to minimize time and labour cost. The environmental aspect demands the packaging system to be recyclable and to use the least material possible (Drury, 2008)
Get the correct buyer: One of our biggest challenges is finding the right buyer within a large organization, so do your homework. If you’re experiencing roadblocks, consider hiring a distributor or manufacturer’s rep who already has established relationships in your industry.
Be prepared: we will develop a presentation and have professional-looking sell sheets ready. Our product should also have packaging that’s ready to go.
Know your target: Understand what products they already carry and how ours will fit in. we will not waste our time pitching to a retailer who’s unlikely to carry your product.
Take advantage of special programs: Some mass retailers, such as Wal-Mart, have local purchase programs that give managers authority to try local items. And other retailers may have different initiatives, such as minority business programs.
- Prepare an income statement using the absorption costing method for the month of March for the 200,000 units sold. Your administrative expenses in March totaled $4,000 and company tax rate is 30%. Include all other relevant expenses for the month of March.
Income statement using the absorption costing method for the month of March (Horngren, 2009)
Sales (200,000 × $8) ……………………………………. $ 1,600,000
Cost of goods sold:
Cost of goods manufactured……………………. $ $ 748,750
Add: Beginning finished goods inventory … 100,000
Goods available for sale ………………………….. 848,750
Less: Ending finished goods inventory ……. 100,000 748,750
Gross margin ………………………………………………… $ 851,250
Less:
Research and development……………………… $ 20,000
Salary, sales supervisor ………………………….. 85,000
Commissions, salespersons……………………. 70,000
Administrative expenses …………………………. 4,000 179,000
Income before taxes………………………………………. $ 672,250
Income After 30% taxes……………………………… $201,675
Direct materials + Direct labor + Variable overhead + Fixed manufacturing overhead allocated
161,400 + 190,000 + 300,550 = 651,950/200,000
Unit cost = $3 unit product cost under absorption costing
References
Burgstahler, D. H. (2008). Introduction to Management Accounting, 14th ed Upper Saddle River: Prentice Hall. Chapters 2 & 5‐6.
Drury, C. (2008). Management and Cost Accounting, 7th ed. London: South‐Western Cengage Learning. 11-12.
Horngren, C. T. (2009). Cost Accounting: A Managerial Emphasis, 13th ed. Upper Saddle. Chapters 3 & 11.
Horngren, C. T. (2009). Management and Cost Accounting, 7th ed. London:. 11-12.
Jose M. Framinan, R. L. (2014). A Case Study: Ceramic Tile Production. Manufacturing scheduling systems: An integrated view on models, methods and tools.