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Term Paper on Use of Management Accounting

Tools & Techniques in Tiffany Corporation


Term Paper on
Use of Management Accounting Tools & Techniques in
Tiffany Corporation
Submitted To
Dr.Yousuf Kamal
Associate Professor
Course No: 4202 (Introduction to Cost & Management Accounting)
Department of AIS
Faculty of Business Studies
University of Dhaka

Submitted By
Group Name – The Tiffany’s
Evening MBA
Department of AIS
Faculty of Business Studies
University of Dhaka

August 24, 2015

Group Profile Group Name – The Tiffany’s NAME ID NAUSHEEN AHMED 114-27-036 RUMANA AKTER 114-27-021 MD. ABU BAKER 112-22-069 MAHMUDA PARVIN 113-24-079 NAZMUN NAHAR 113-24-057 MOHAMMAD SAKHAWAT HOSSAIN 113-24-048 2|Page .

The Tiffany’s Evening MBA Department of AIS Faculty of Business Studies University of Dhaka 3|Page . However. This project helped us tremendously to understand the implication of theoretical knowledge in the practical field.Yousuf Kamal Associate Professor Department of AIS Faculty of Business Studies University of Dhaka Subject: Submission of Term Paper on “Use of Management Accounting Tools & Techniques in Tiffany Corporation” Dear Sir It is our greatest pleasure that. Sincerely Yours Group Name .Letter of Transmittal August 24. In preparing the term paper. With due respect and humble submission. your kind cooperation helped us doing the task accurately. 2015 Dr. we have got the opportunity to submit the term paper on the topic cited above as part of our course curriculum. we are submitting the report to you for evaluation. We have undertaken our sincere effort for successful completion of the term paper. this paper may have shortcomings which we hope will be considered cordially.

Associate Professor.Acknowledgement We would like to pay our gratitude to all of the related books. 4|Page . Department of AIS. Without his advice and support. At first we would like to acknowledge the Almighty. who helped us every time and was with us and gave us moral support and strength every moment. for giving us valuable suggestions and support to prepare this term paper. authors and related Web Sites that helped us a lot for the completion of this term paper. We are especially grateful to our honorable course teacher Dr. it would not be possible for us to prepare this report. Yousuf Kamal.

rather than simply suppliers of data. 5|Page . all these things help us in making judgments and measuring performance. Significant advances in automating routine transaction-related accounting tasks. Managerial accounting information provides data-driven input to these decisions. Also. the new analogy has been providing value-added information that is directly to the point and suggests options that management might not otherwise have considered. and potential selling price for our new product. which can improve decision-making over the long term. for example. Management accounting is fundamental in strategic planning. at some companies the work of management accountants has increasingly been labeled "finance" rather than "accounting" to suggest a broader set of skills and expectations. total overhead cost. The other part of accounting. management accounting helps conduct sensitivity analysis for the emerging situations. among other things. Many companies now expect their managerial accounting staff to assist in developing strategies to enhance shareholder wealth and to participate on crossfunctional teams with managers from operating departments throughout the organization. Small business managers can leverage this powerful tool to help make their business more successful by understanding how management accounting benefits common business decision contexts. This trend had been building since the 1980s and accelerated in the mid-1990s. In this paper. total cost. The thrust of the changes have been to make management accountants strategic partners and analysts in management decision making. Moreover. combined with a strong corporate emphasis on value creation. have signaled new directions for managerial accounting. Among them. Small business owners are faced with countless decisions every business day. Its main purpose is to record transaction details in monetary terms and prepare financial statements and reports in accordance with GAAP. So. Indeed. we have applied basic management accounting’s tools and techniques for determining unit product cost. management accounting tools helps us to know the point of sales where our target profit is zero which is well recognized as break even analysis. So. When a business is looking to make a strategic decision. whether to develop a new product line.Executive Summary The accounting literature identifies quite a number of specialized fields of accounting. the management accounting can assist to take appropriate decisions. financial accounting is the original field of accounting. Management accounting provides necessary information to assist management in decisions making and management control. acquire another business or expand into other countries. If the old analogy was supplying endless data for management to sift through.

Table of Contents Contents Letter of Transmittal Acknowledgement Executive Summary Introduction & Methodology Overview of The Company Description of the Product & Segmentation Strategy Theoretical Overview of Management Accounting Tools & Techniques Use of Management Accounting Tools & Techniques in Tiffany Corporation Recommendations Conclusion References Page No. 3 4 5 7 8 9-14 15-16 17-20 21 22 23 6|Page .

which are: 1. the methodology.Introduction & Methodology In this chapter. Using of proper management accounting technique to determine the break even sales point 4. Then we decided the possible market segmentation of our product “SOLAR MOBILE” and then developed the appropriate cost and management techniques for our company. we all the group members selected a new product for our business model and then developed the costing system for that product. Yousuf Kamal. To study about the latest management accounting tools and techniques 2. we have followed some procedures and steps such as at first we have given an idea of our company. objective of the report. Then we discussed about the product. Limitations of the Study  The information regarding the competitors is difficult to get. Origin of the Report The Evening MBA program under the department of Accounting & Information System offers a course named “Introduction to Cost & Management Accounting” (Course No. The report under the headline “Use of Management Accounting Tools & Techniques in Tiffany Corporation” has been prepared towards this purpose. we decided to make a report on the ‘Use of Management Accounting Tools & Techniques in Tiffany Corporation’.  Delays in getting the necessary materials department to collect information from different sources 7|Page . At first. To develop deep understanding about how a costing system works in an organization Methodology After being instructed by our honorable course teacher of Dr. scope and limitations of the report. To determine the appropriate price by analyzing the cost drivers and other financial aspects 3. Objectives of the Study There are several objectives to conduct the study. For arranging all the data. we tried to describe the origin of the report. 4202) which requires every group to submit a report on a specific topic determined by the course instructor. Our plan for making this report was firstly to collect data about segmentation and analyze them attentively for finding out the necessary information related to our report and finally to arrange all of those data systematically.

Board of Directors Name Nausheen Ahmed Designation CEO Function Managing & Controlling the overall activities of the organization Rumana Akter Director Looks after the activities of Marketing Division Md. office space. and any reproduction or divulgence of any of its contents without the prior written consent of the company is prohibited. This debt will cover factory equipment. It is intended only for use by the persons to whom it is transmitted. supplies. office equipment. Abu Baker Director Looks after the activities of Finance Division Director Looks after the activities of Employee Relation & People Engagement Division Nazmun Nahar Director Looks after the Procurement Division Mohammad Sakhawat Hossain Director Looks after the Production Division Mahmuda Parvin 8|Page . advertising and selling costs. This report is confidential and is the property of the entrepreneur. Financing Initial financing requested is a BDT loan to be off over 5 years. Description of Business This business will produce quality cell phone sets and serve them to consumers.Overview of the company The Tiffany Corporation is a mobile set manufacturing company. leased vans.

Solar charger 4. 3. Water resistant structure 1. progress in diversity. Solar energy receiving system 2. Water resistant structure 5. 4. Model based facilities are given below: Serial no. Water resistant structure.Description of the Product Our Mission “Our mission is to provide value at an economic cost. Solar energy receiving system. High definition signal receiver 3. and continue to contribute to the growth of industrialization in Bangladesh by being the market challenger” Description of the products We are going to introduce 3 different models each of which will provide different levels of utilities to the consumers. Model code TR-66 TR-77 Utilities 1. Solar charger 4. Internet browsing facilities 6. Solar energy receiving system 2. 1. 2. 2. High definition signal receiver. High quality solar module that can charge the battery within 20 minutes 9|Page . Solar charger. Basic qualities of the products are: 1. High definition signal receiver 3.

3. Internet browsing facilities 6. Solar energy receiving system 2. Solar charger 4. Solar module that can charge the battery within 7 minutes 7. Water resistant structure 5. Steel body 8. TR-88 1. High definition signal receiver 3. MP3 & MP4 player 10 | P a g e .

etc.Segmentation Strategy Marketing Research Information for developing segmentation strategy may necessitate conducting some marketing research. in fact. Therefore. then we hope that we will be able to capture a significant portion of total market share. Our plan is. suppliers.  The target customer of our product “TR-77” is the young adults. yet. Because. We gathered information from primary and secondary sources. after getting the approval of all the related parties like: financiers. who are adventurous in nature & like to experience attractive things. As our business is a new venture. are shown here. which is just waiting to receive approval from all the related parties. we will launch our venture.  Scope of the market The demand for changes in the market is ever rising. even if set up the plan. Their age range is 22-26. if we concentrate our business heavily into something that will provide newer utilities at a less price. certainly. our business plan is simply a written document. 11 | P a g e . 2) Defining the target market At first fixing “Target Market” very much important for our introduction. And we see that consumers’ choice is changing. Steps in preparing the segmentation strategy 1) Defining the Business situation The market of cell phone sets is so vast.  The target customer of our “TR-66” model is those people who are not interested about the design of the cell phone but eager to get comprehensive advantage from the use of his or her cell phone set. What we found. now. Defined target market usually represents one or more segments of the entire market. There may involve: - -Buyer of the product -charging price -proper distribution channel -effective promotion strategy Since these costs are high enough. we didn’t go to production.

Proper training program for skilled sales team. social status. Competitive pricing strategy. we just took it into our consideration that every single person’s life style. psychological need. Price. future expectation of life is different. 5) Defining Marketing Strategy and Action Program Five important elements of marketing mix are: Product. There are different marketing strategies which will be discussed later. and attitude toward life is clear-cut and have enough money in hand. Proper distributional system. 3) Considering Strengths and Weaknesses -For consideration of strengths and weaknesses in the target market we regarded asStrengths       Financial support from financiers. whose mind setup is determined. Promotion and Packaging. Distribution. Strong Corporate Image. One stop solution operation plan. Defining marketing strategy means taking decisions which reflect on these marketing mix variables. and instant demand. 12 | P a g e . When we set up our target market for each and every product. Weakness      Shortage of concentrate Quality issue Demand gap Outdoor campaign is not sufficient enough Lack of cash may be seen in hard time. Opportunities       New package in market New offer Newly introduced Machine More export Strong distributional channel Given sample to the customer Threats   Threat of established cell phone company Different package offer from different company. Our target customer of TR-88 is those people.

So. we are offering our phone models. 13 | P a g e . It means: Geographic SEGMENTATION Demographic Geographic segmentation We have divided the whole Bangladesh into 8 major areas according to the environment & sunlight variation. we will provide TR-66 for that region. According to the areas’ nature. Sales and distribution Mymensingh Bogra Sylhet Dhaka 1-2-3 Khulna Chittagong Barisal Noakhali For example: Northern part of Bangladesh gets sunlight in almost all the year & electricity is not at all available in everyplace of that region.Segmentation Process Since our products acceptance to users depends on its utilities & price. we choose to the potential market geographically & then demographically.

Area with almost continuous electric supply Area with moderate electric supply Area without electric supply High income TR-88 TR-88 TR-77 Moderate income TR-77 TR-66 TR-66 Low income TR-66 TR-66 TR-66 Geographic/ Demographic Similarly we will segment our market to improve our market share. Products will reach the consumers from our hands through the following way: 14 | P a g e .

g. law firms. material and expenses to an individual project or job. forecasting. e. generally. Job-order costing is also used extensively in service industries. being 15 | P a g e . for example. are treated as product costs with non-manufacturing costs. Specifically. CVP analysis focuses on how profits are affected by the following five factors – selling price. A joborder costing systems is used in situations where many different products are produced each period. Job Order Costing (JOC) Job Order Costing. Six Sigma seeks to focus an organization on – defining customer/user requirements. JOC is normally software based and provides for budgeting. Goldratt published The Goal. and profit. Theory of Constraints (TOC) In 1985. Process Costing Process costing is a method of cost and management accounting applied to production carried out by a series of chemical or operational stages or processes. a novel about manufacturing. Goldratt devised a set of nine rules that summarize his principles of optimized production. both variable and fixed. it is the allocation of all time.Theoretical Overview of Management Accounting Tools & Techniques For fulfilling the purpose of management accounting there are already many techniques and tools prevail in the market which are as follows: Cost Volume Profit (CVP) Analysis CVP analysis examines the behavior of total revenue. advertising agencies and repair shops. collecting and reporting on the expenditure and revenue associated with specific projects or jobs. Cost volume profit analysis is a powerful tool that helps manager understands the relationships among cost. Its characteristics are that costs are accumulated for the whole production process and that average unit costs of production are computed at each stage. Specifically. selling and administrative expenses. sales volume. Goldratt’s emphasis on bottlenecks led him to codify his approach to problem solving into a structured process he called the Theory of Constraints. selling price and variable costs per unit or fixed costs. movie studios. unit variable costs. Six Sigma Six Sigma can be defined as a specific methodology to develop and implement quality improvements in an organization’s critical processes by rigorously measuring and identifying variations from customer specifications in those processes and adjusting them or creating entirely new processes to keep variations at an acceptable level. In order to have the philosophy of The Goal cover more than just manufacturing operations. Absorption Costing Absorption costing is the method under which all manufacturing costs. volume. total costs and profit as changes occur in the output level. accounting firms. total fixed cost and mix of product sold. aligning processes to meet those requirements. A process costing system is used in situations where the company produces may units of a single product for long periods. using metrics to minimize variations in processes and rapidly and permanently improving processes. all use a variation of job-order costing to accumulate cost for accounting and billing purposes. Hospital.

direct materials and the variable proportion of manufacturing overhead. Normally it is calculated as contribution margin or CM (sales revenue less variable cost) divided by net operating income or NOI. Fixed manufacturing overhead is not treated as a product cost under this method. indirect labor. It is a measure of leverage. as opposed to attempting to modify an existing product instead so it can be made lucrative. Variable Costing Under variable costing. overhead. 16 | P a g e . regardless of whether they are variable or fixed. direct labor. marketing. and selling / general / administrative accounts on a unit basis for the purpose of accurately costing products and the subsequent control of those costs in managing the production. That means this method used in management accounting to determine the cost equation of the company. and of how risky (volatile) a company's operating income is. But. A breakeven point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product. This would usually include direct materials. uses all of the data to separate a mixed cost into its’ fixed and variable components by fitting a regression line that minimizes the sum of the squared errors. Break Even Analysis The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR = TC). High Low Method This is mainly a statistical tools also used in management accounting to find out the relation between fixed cost and variable cost. unlike the high low method. Absorption costing treats all manufacturing cost as product coasts. Standard Costing Standard costing is an accounting system designed to properly allocate costs of direct labor. purchasing. and administrative functions of the business. Under this method per unit variable cost is the difference of cost of higher activity and cost of lower activity divided by the difference of higher and lower activity. The cost of a unit of product under the absorption costing method consists of direct materials. only those manufacturing cost that varies with output are treated as product costs. it is expensed in its entirety each period. fixed manufacturing overhead is treated as a period cost and like selling and administrative expenses. Operating Leverage The operating leverage is a measure of how revenue growth translates into growth in operating income. materials.treated as period costs. Rather. Break even analysis can also be used to analyze the potential profitability of an expenditure in a sales-based business. and both variable and fixed manufacturing overhead. used to find out the relation between fixed cost and variable cost. Least Squares Regression Methods This method is also like the high low method.

depreciation of office equipment etc. packing material costs Executive salaries. depreciation. insurance. Cost Behavior The main cost identified above can be separated into variable. heat & light. clerical 17 | P a g e . heat gun. direct labor. solder iron. depreciation of sales facilities etc. Salary and wages of assembly line workers Direct Material Direct Labor Manufacturing Overhead Salary of the factory manager. sales commission. advertising. utilities. Executive compensation. wire stripper etc. fixed and mixed category Cost Type Variable Cost Fixed Cost Mixed Cost Details Direct material. heat shrink tubing.Use of Management Accounting Tools & Techniques in Tiffany Corporation Main cost of producing Solar Mobile  Manufacturing Cost  Non-Manufacturing Cost Manufacturing cost comprises of direct material. insurance. insurance of manufacturing facilities Non-Manufacturing Cost Selling Cost Administrative Cost Cost of Advertising. property taxes. depreciation. Sales salaries and commissions. direct labor and manufacturing overhead which are as follows for Tiffany Corporation: Cost Type Details Manufacturing Cost Cost of the main raw materials like solar panel.

000 and 20.503 TR-77 (Tk.) 1.600.710 6.Determination of Product Cost  Cost Driver: Batch wise labor hour of the three main department  Way of Cost Drivers' Data Capturing: Labor log books to total labor hours The labor hour activities in Tiffany Corporation are as follows: Code 061037 061038 061039 Product Name TR-66 TR-77 TR-88 The Labor Hour Activities Wiring & Batch Batch Size Tubing No Dept.012 898 3. 30.490 TR-88 (Tk.818 16.000 2. 25. assembling department and finishing department respectively.982 1.) 7. of working days (3) 26 26 26 No. 25000.980.) 4.000 per Labor hour for wiring & tubing department. overhead absorbed for the batch of production at the rate of Tk. Hour 3 3 3 Finishing Dept.629 376 1. Hour 2 2 2 Production cost per unit under Job Order Costing System During the production period.000 Determination of Unit Production Cost Type of Cost Raw material Packing material Factory overhead Product cost per unit TR-66 (Tk. 2.580 8.040.000 Total No. Hour 3990 DB9017 4 1670 DB9018 4 877 DB9019 4 Assembling Dept. Determination of Total Overhead Departments (1) Wiring & Tubing Assembling Finishing OH rate (2) Tk.000 30.000 5.498 Tk/ 3.510 18 | P a g e . of working hours per day (4) 4 3 2 Total OH (2x3x4) (5) Tk.000 20.000 1.340.

We can conduct a scenario analysis for Tiffany Corporation in the following aspect: Scenario Impact 5% increase in the price of electronics and electrical accessories 2% increase in the price of electronics and electrical accessories & Increase of yearly advertising budget by Tk.975 Break Even Analysis Tiffany Corporation currently sells 8.000.000. 1.057 TR-77 (Tk.000. Details are in the following table: Determination of Break-Even Unit Sales Type of Cost Fixed Costs (a) Target Profit (b) Unit CM (c) BE Unit Sales (a)/(c) TR-66 (Tk. both of the situations may affect net operation income of the company to some extent.000 How will Net Operating Income be affected? 19 | P a g e .394 TR-88 (Tk.) 8.000.) 8.) 16. However. 6500 pcs of TR-77 and 5000 pcs of TR-88. we have to grab attention of the customers for which we may need to increase our monthly advertising budget.510 1.) 3. as a new concern.224 1.202 TR-88 (Tk. the increase or decrease in the price of these accessories is a common phenomenon.000 0 1.000 0 2.245 Scenario Analysis As our organization deals with electronic and electrical things.490 1.465 3.) 8.) 8.904 4. So.224 Profit (7%) Selling Price 330 Tk/ 5.503 1. We also determined our break-even point so that we will be able to know the point where our target profit is zero. Tiffany Corporation sets 7% profit margin on total cost.554 Tk/ 5.Determination of Potential Selling Price While determining the potential selling price.241 18.000 pcs of TR-66.000 0 1.148 TR-77 (Tk.224 680 10. The details are shown in the following table: Determination of Potential Selling Price Type of Cost Production Costs Per Pcs Fixed Costs TR-66 (Tk.

000.000 Increase in Adv.000 20.000 then NOI is reduced by tk.050 Tk/ 8.000.050 If price of electronic and electrical items is increased by 5% then NOI is reduced by Tk.892.892.000 37.000. 1.892.817. cost (Tk.) 202.000 8.180 20 | P a g e .950.759.000 Particulars Sales Present (Tk.) 202.000 29.845.000 169.000 5% increase in cost (Tk.000 24.287.Scenario-1: 5% increase in the price of electronics and electrical accessories Particulars Sales Present (Tk.180 33.759.820 Tk/ 9. 4.892.845.) If price of electronics and electrical accessories is increased by 2% and yearly advertising budget is increased by tk.000 174.000.000 37.000 29.133.817. Scenario-2: 2% increase in the price of electronics and electrical accessories & Increase of yearly advertising budget by Tk.000 Variable Expense Contribution Margin Fixed Expense Net Operating Income 165.315.950 28.000 8.000. 8. 1.133.) Variable Expense Contribution Margin Fixed Expense Net Operating Income 165.133.

our cost effective and user friendly feature of this phone will easily grab the attention of the customers. However. we will follow differentiation strategy to cope up with competition since new comers may enter into the market and make it more competitive. After reaching the saturation stage. Though it will be a new product in the market. making it capable of charging more than one battery at a time and getting the desired current from the PV panel. we will increase our profit margin. 21 | P a g e . Our software is able to eliminate costs. Also.Recommendations The solar mobile is designed with a view to decrease the battery charging time. after passing the introduction stage. we will focus on adding more features for our phone to target the premium customers.

We have applied some of the management accounting tools and techniques for our new product which enables us to fix the right price for the product and make appropriate decision for present and future growth.Conclusion Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations. But choosing the right strategy for the organization is a key factor. to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. Sometimes this selection depends on situation and sometimes on organization’s strategy. As management accounting has no statutory bindings like financial accounting a manager can select any techniques and tools he / she likes. Management Accounting is one of the most important area for any kind of organization. 22 | P a g e .

cgma. http://www. http://accounting-simplified. Books Managerial Accounting by Garrison/Noreen/Brewer Websites 23 | P a g e .htm http://www. 2.html http://www.