1 Managerial Accounting Assignment – 2018 Summer

GROUP 2 1
 A1. The Business and the Product Sold (Team)
Assume that we are a retail business whose name is IU Milk. Our business is to
sell two kinds of products including standard products and deluxe products. The
standard product is UHT Milk and the deluxe one is Organic Milk.
In recent years, milk has been one of the most viral products in many families. Since
milk provides a lot of nutrients helping users become healthier, more and more people
come to stores for buying milk. Due to cheaper price, UHT Milk is more popularly used,
drawing more attention from several kinds of people, even both the young and the old. It
is a common product which is produced in a normal way with basic qualifications and
requiring less ingredients. In terms of expiry date, the common products also require
preservatives, which makes them become long-term products. Organic Milk has a
higher cost of good manufacturing on account of such higher qualifications, more
requirements and a lot of difficulties in maintenance process and especially, it is a short-
term product as it does not include preservatives. As a result, Organic Milk has a higher
selling price than the one of UHT Milk. Customers also have a tendency to get what is
more well-qualified than the other one so they would buy more products of Organic Milk.
To follow the plan above as more effectively as possible, we come up with some
strategies which are extremely consistent with the products we are selling and the
pricing we described. First, we make use of principles of marketing as the ways of
attracting more customers’ attention. We have a lot of choices to advertise the products
to people. For instance, our products are usually advertised on television or they make
2 an appearance at websites on the Internet. By thisAccounting
Managerial way, there are more
Assignment and
– 2018 more
Summer
people paying attention to the advertisement and then they would try our products.
Second, we have a branch expansion, which means that we open more stores, in
particular from three to five stores. This method helps us have a chance of interacting
with more people in many different places and expanding the areas involved and
improving the fame of our brand name. In addition, we create a website for ourshelves
to express kinds of products there with full of information to the customers such as
kinds, prices, qualification, ingredients, nutrients, expiry date, and so on. Thanks to
getting access to the website, customers do not need to come to stores for only buying.
Instead of that, they just take it easy when they are sitting at home and click on which
are their needs. All of these ways make customers increase their level of identification
of our brand name, which has the same meaning as that our total sales of products will
sharply increase. Moreover, the more the population is increasing, the more products
we need to produce. The consumption demand is also higher and higher day by day
because of the growth of population so people will tend to gather and live in the areas
where the stores are. All of the above result in that we have an expectation that total
sales will have such a change in current year – it will increase a lot.
To sum up, our business is to sell two kinds of product that are UHT Milk – standard
product – and Organic Milk – deluxe product. We have some strategies to follow the
plan that is selling products to the public and developing our business. And finally, we

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 have an anticipation that our total sales of milk will have such an increase in current
year.
A2. The Budget
Nguyễn Hải Trần – BAFNIU17036
08/08/2016
BUDGET REPORT FOR THE YEAR OF 2018
SUMMARY
This report provides a description of following year budget for the company
based on evaluation of the current sales and prospective profitability, liquidity and
financial stability of IU Milk Company. In this report, the weighted average method is
used for calculating the price per purchased unit; also, the potential environmental and
industry environmental factors involving both sales and supplier are all reported in order
to find out the possible responses for these effects. In addition, it also shows up its
comparative performance comparing with domestic market and finds the positive and
stable prospects of the company. Generally, this report is to prepare for company’s
realistic views on their retailing business and strategies for the forward development by
analyzing the influent factors, customer demand, and negotiated contract with suppliers.
SALES
Expected Key Environmental Factors
3 Managerial Accounting Assignment – 2018 Summer
According to the anticipated percentage distribution of sales by quarter displayed
on Data Sheet, “normal sales” is assigned from 20 to 30 percent of total sales. This is to
ensure the ability to distribute product of company among calendar year. For the UHT
Milk, the largest figure occurs in the 3 rd quarter and in the 1st quarter for the Organic
Milk. Which leads to this difference is that the beginning time of school year and Tet
holiday takes effect on customer desire to buy deluxe products as gifts, respectively.
The anticipated selling price per unit is varied at the nearly-year-end. The
reasons for this variation are expiry date for the deluxe product (less than ordinary one)
and desired established sales. Thus, 4th quarter suffers a slight decrease in selling price
from $20,000 to $19,000 for UHT and from $50,000 to $49,000 for Organic.
The percentage of outlet sales differs between shop and online in customer’s
routine and expectation for product sold.
Budget Response to a Key Environmental factor
Those factors would influence company’s prepared budget mainly in customer’s
demand and new buying trends, which is hard to estimate as it changes over time. To
respond with these, IU Milk needs contingency plans and catches those changes
immediately, hence, the appropriately set-up budget will meet the company’s target and
be able to adapt any changes in the market.

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 Additional Marketing Expense incurred mostly at the beginning of calendar year.
This is a good strategy to introduce the product toward clients, it is not only a good time
but also a good way to deliver fresh and new image of milk, which leads to customer’s
willingness to buy more. With Organic Milk, deluxe product, it takes more for marketing
as its consuming level approaches a high in 1 st quarter of annual sales.
SUPPLIERS
Expected Key Environmental Factors
Following to the variations in purchases of inventory of IU Milk occurred, the
quantity product purchased is assigned to be normal with 24,000 units for UHT and
12,000 units for Organic milk. This number estimated is based on annual supplying
ability of supplier with its manufacturing processes and technology. In addition, some
more factors also may take responsibility for changes such as fluctuation in stock
market, input raw materials price.
Along with these mentioned come the inventory policy of the company, which is
15% and 10% with respect to UHT and Organic. These percentage are assigned to be
properly optimal for management of stock. It ensure that inventory are in controlled and
cost properly, while losses and shortage are prevented. They can cover the variations
and assure the business go on track.
Budget Response to Key Environmental Factors
Within the effects above, the budget would be influenced as a result. The price
4 Managerial Accounting Assignment – 2018 Summer
variations obviously cause the change in budget inventory purchases as it changes over
time. To cope with these problems, the established budget, which is the centerpiece in
administering business of the next year. Quantity purchased are distributed based on
the performance of the anticipated, thus, equivalent and corrective evaluations must be
conducted in such way that company needs.
The anticipated average cost per unit to purchase during the budget period
varies differently among 2nd, 3rd and 4th quarter in both ordinary milk and the deluxe one.
Product purchased price increase focuses on the 2 end quarter of the year. It is
because the negotiated contract with the supplier for the product supplied during the
budget period suffer effects from the market and changes in raw materials price.
However, the budget have recognized and been designed to fulfill these factors by
using the weighted average method to determine the cost.
OTHERS
Sales distribution between shop and online differ in the customer shopping
routine in the product of company, milk. Therefore, it has a clear vision in the difference.
The packaging cost is set up equally for both types of product at the cost of $2,000. And
the annual salaries are set the highest for the shop, $900,000,000; as those play
prominent role in total sales of the company, while online takes the smallest according
to the anticipated volume sales estimated is low, only $60,000,000. With head office

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 function, who take responsibility for managing operating, financing and investing of the
company, the manager and staffs are paid with the buck of $600,000,000 for their jobs.
Non-salaries cost determined mostly are incurred in depreciation, equipment repaired
of the shops and office; a little number in online are assigned to fee bank.

5 Managerial Accounting Assignment – 2018 Summer

GROUP 2 5
 A3. Analysis Part 1.
Phạm Thị Thạch Thảo. BAFNIU17060.

A3.1 Profit analysis Task 6:

A3.1.1. Justification of your teams approach.

The aim of this justification is to provide more detailed profit information based on
our assumptions. Firstly, our group’s distribution function costs allocations is shown
below:

According to this chart and our business strategy, we know that our business
mainly sells milk through the store instead of online, the way to sell via online only
supplement to increase sales revenue. But based on the additional information given in
task 6, in Section I, because of the online site’s ongoing maintenance, the operation of
the website is integrated into the responsibility of a head office staff, so the salary of the
6 Managerial Accounting Assignment – 2018 Summer
distribution function has no change between shop and online, because this
incorporation only affects head office costs and the assumption is that the head office
has no change in cost. Initially, before the establishment of distribution center, the
warehouse was simply used to store the milk before being distributed to the shops, so
the percentage of distribution salaries costs relating to shop is 100% and relating to
online is 0%. Because in our business strategy, in shop, we have 5 shops, include 2
agents and 3 shops, we will need at least three staffs in one shop: two staffs will
introduce the milk to customers, find the way to sell it to customer and also package the
sold milk for customer, another will check the bill and keep track of all things in this
shop, and one more staff for agent has responsible for inventorying sales records. For
online, we just need about two employees, one to control the system, consolidate the
website to ensure that there is no problem with it, one to pick up the phone calls,
package and ship the products. Then, after the establishment of the distribution center,
in Section II, the hypothesis that the distribution center was set up to send online orders,
was also entered into a warehousing function, so the percentage of salaries in
distribution costs have changed, the percentage of distribution salaries relating to shop
will decrease and increase the online one. That is why the percentage of salaries that
relates to shop is 65%, and the other is 35%.

Now we will continue to analysis on distribution function non salaries cash costs,
our team thinks that the non-salaries cash cost of distribution function is the amount
used to transport goods, if sold through the shop, each shop only needs one order from

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 the store once per month, the cost will be fixed and cheaper than shipping for each
order of online customers. For online sales, for each order from the customer, we spend
a shipping fee, because if you ship multiple times, the cost for each shipment will
increase depending on the distance of the customer; besides, the cost will be higher
and not get the discount from the shipping company associated. In addition, if we sell
through shop, there will be more expenses incurred. For example, to keep milk fresh
and preserve milk, we need at least one refrigerator, and many lights for illuminating the
shop, then the electricity expense will be much higher - we also need to spend money
on renting the shop. Moreover, the additional marketing expense will affect the
percentage of non cash salaries. For online, our business promotes marketing by
running ads on social networks, with the sale through the shop, the cost of the
billboards, standee for each promotion, the cost of trial products at the store. So, 45% of
non salaries cash relates to online and 55% of this will relate to shop.

Next is for non salary non cash costs, it includes the employees’ prepaid
insurance and depreciation. We will have to pay the insurance for all the staff working in
our shops and the amount of money is large because for each shop, we have three to
four staffs. Besides, all the items such as furniture and fixtures in the shop must be
inspected and maintenanced every quarter, like the refrigerators. Sometimes, one item
is badly damaged by somehow incident, we will need more money to fix or replace it. As
the years go by, the depreciation of the assets will also affect the percentage of non
salary non cash costs relating shop, so this will be about 90%. In online selling, we only
care about the staffs’ insurance and little depreciation occurs, this depreciation
happened on computers and telephones. Based on what listed above, about 10% of
non salary cash costs that relate to online.
7 Managerial Accounting Assignment – 2018 Summer
Our new Income Statement will become: (include in analysis sheet)

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 A3.1.2. Brief report to management:
The aim of this report is to provide a more reliable, meaningful report to
management. This report is about profit analysis and shows the profitability of each cost
object.

It can be seen that the total amount of annual distribution function salaries costs
is about 100,000,000 VND and is based on the analysis and release above:
 65,000,000 VND of the annual distribution function salaries costs relates to shop.
(65%).
 35,000,000 VND of the annual distribution function salaries costs relates to
online. (35%).
These data are detrimental to online sales, and the expansion of online sales has
resulted in a growing number of orders from customers, so the current number of staffs
is not sufficient. The pressure to complete work and pay is not sufficient for the amount
of overtime, which can cause dissatisfaction among staffs.

Our business pays total 144,000,000 VND for distribution function non salaries
cash and this amount is divided into:
 64,800,000 VND of this amount will relate to shop. (45%)
 79,200,000 VND of this amount will relate to online (55%)
Shipping costs for online orders are very high for each shipment; therefore, the
total amount of online shipping costs a large percentage. We can find another way to
reduce shipping costs, which can be contracted with outside companies to help us
8 deliver goods to each customer, so online staff who isAccounting
Managerial responsible for delivery
Assignment – 2018 will have
Summer
less work and shipping costs are also reduced.

About distribution function non salaries non cash is 18,720,000 VND, by the way
we analysis above:
 16,848,000 VND of this amount will relate to shop (90%)
 1,872,000 VND of this amount will relate to online (10%)
Because our company does not own any property, premises and tools are all
rented. Most of the distribution function non salaries non cash is from the depreciation
of assets. The selling through online does not require a lot of machinery and tools, so
the depreciation from online is low. If we sell through the shop, the furniture and fixtures
that company spend money to buy are depreciated, so the percentage of non salaries
non cash relating shop is high.

With the above information, we hope management can see the new income
statement more valuable in managing the company.

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 A4. Analysis Part 2
Nguyễn Thị Anh Thư – BAFNIU17013
Lý Kim Phụng – BAFNIU17004

A4.1 Cost volume profit analysis Task 7

In this task, we base on online data and explain how our team determine the
selling price per unit, variable costs per units and fixed costs which we must pay in any
situations. We also show you the difficulties we face during year to achieve the target
profit on online facility. In the end, we will give some recommendations to reduce our
difficulties based on scenarios.
A4.1.1 Justification of your teams approach
The cost volume profit is based on the following data for IU Milk Company:
Selling price per Unit 27,500 VND
Variable cost per Unit 5,333 VND
Contribution margin per Unit 22,167 VND
Contribution margin ratio 81%
Total fixed cost 541,750,000 VND
Contribution margin per Unit 22,167 VND
Break-even Sales in Unit 24,439.5
Total fixed cost 541,750,000 VND
Contribution margin ratio 81%
Break-even Sales in VND 668,827,160.5 VND
9 Total fixed cost plus target profit 1,626,354,250
Managerial Accounting VND– 2018 Summer
Assignment
Contribution margin per Unit 22,167 VND
Sales volume needs to reach financial goal in Unit 73,368.3
Total fixed cost plus target profit 1,626,354,250 VND
Contribution margin ratio 81%
Sales revenue needs to reach financial goal in 2,007,844,753 VND
VND

In this part, we will introduce the concept of variable costs and fixed costs, then
we will explain how we can get the data of variable costs and fixed costs on online
facility.
Firstly, variable costs are costs that vary in proportion to change in the activity
base and remain the same per unit at every level of activity. According to this definition
and based on Analysis sheet in Excel, our variable costs are Packaging and  Posting
and Placing order cost, because these costs are relevant to produce units. Packaging
and Posting cost is determined by 2,000 VND per unit which include the cost of
packaging products and the cost of delivering them by posting. The other one is Placing
order cost which is the sum of division of anticipated cost of placing order and
anticipated normal purchase quantity of UHT Milk and Organic Milk, approximately
equal to 3,333 VND per unit. Therefore, the variable cost per unit is approximately 5,333
VND.

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 Next, fixed costs are costs that remain the same in total amount as the operation
changes in any situations. Based on this concept and Analysis sheet in Excel, we find
that our fixed costs include Salaries & Wages, Non salaries Costs and Head Office
Costs, because these costs cannot be changed when we sell a huge amount or zero.
Salaries and Wages costs are determined by 70,000,000 VND, which includes all
salaries and wages of staffs who work on online part. Non-salary costs are determined
by 60,000,000 VND which contain costs for maintenance service of online website. And
last is Head Office costs are determined by 411,750,000 VND which is assumed to be
equal 45% of total Head Office costs.
A4.1.2 Brief report to management

10 Managerial Accounting Assignment – 2018 Summer

 We use the Cost- Volume- Profit (Break Even) Chart in this part to analyze when we
can achieve the target profit (How many product do  we have to sell to earn profit?) ;
when we get loss profit in operation , why do we get loss and our recommendation to
avoid loss profit.
From the table, we can draw the Cost- Volume- Profit (Break Even) Chart, graphically
showing sales, costs and the related profit or loss for various levels of units sold. In the
figure, the break-even point for IU Milk is 668,827,160.5  VND of sales, which
represents sales of 24,440 units. Operating profits will be earned when sales levels are
to the right of the break- even point (operating profit area). To achieve the profit, we
have to sell more than 24,440 units on website a year.  

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 Beside the profit area, operating losses will happen when sales levels are to the left of
the break- even point (operating loss area). There are some reasons leading to the loss
profit . The first reason is short expiry date of milk. It cannot be stored for a long time in
warehouse. We have difficulties in keeping milk in good repair for a long time and we do
not make sure that we can sell all of the products before they are out of date. This also
leads to the loss profit. The second reason is that there are many competitors outside.
Many retailers appearance makes our market smaller. And the last reason is risky like
fluctuation of economy. When there is change in economic policy, the product price will
be changed. This mainly affects on cost of purchase and direct to profit.  When using
cost- volume- profit chart, we can analyze changes in the unit selling price, total fixed
costs and unit variable costs. We also recommend some solutions to decrease the
loss. We will try to build our brand name which is charismatic to keep our customers.
This is very important because there are many unreal products which do harm to
customers so brand name helps us to make customers believe in our products. And we
also hope government can stabilize price of products for years to limit unexpected
increasing price in market.
In conclusion, online facility plays a vital part in our company because in 4.0 society
online purchasing is indispensable. Online shopping gives many advantages such as
less costs and expenses, not needing to hire many staffs ,employees or premises.
Beside benefits, online facility also contains risky to our company such as about
inventory, many competitors and fluctuation market. Last but not least, we hope our
online shopping develops annually and brings benefits to our customers.

11 Managerial Accounting Assignment – 2018 Summer

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