Introduction to Managerial Accounting

Section 27
Project Topic:
Determining the Cost of a Product

Submitted To:
Trisha Ahmed (Tsa)
Lecturer, Department of Accounting & Finance
North South University

Submitted By:
Name Students Id
BM Nazmul hasan Ome 1620584030
Alif Rahman Khan 1620083030

Submission Date:
27th December 2017
 Letter of Submission

27th August, 2019

Rezwanul Mumtahin Husain (RMH1)
Lecturer, Department of Accounting & Finance,
North South University,
Dhaka, Bangladesh.

Subject: Submission of the group report on determination the cost of product.

Dear Sir,
With due respect, we were given to right a report on computing the cost of a product. We choose
a Restaurant named “Khanas” situated in Bashundhara and for the product we selected one of
the their popular item which is Hot Fries. The main theme of this report is to calculate the cost
of that particular item. All the relative information was provided to us by one of the employee of
Khanas. He also wanted us to convey his utmost gratitude to you for making them a part of our
report.
We would like to proclaim our heartiest gratitude for allowing us to take charge of such a
project.

Sincerely,
Mahin Rahman Tisha
Amrin Azmine Sara
Safayat Ahmed
BM Nazmul Hasan Ome
 Executive Summary
Khanas is a restaurant which is well known for its wide range of food item. It’s a small restaurant
next to Jamuna Future Park and right next to Burger King. Although it is not a part of any large
organization, it has several branches around Dhaka city. There are many competitive restaurants
surrounding Khanas, still it is holding its position by providing palatable and authentic food
items to its customers. Khanas generally opens up from early morning to midnight. The idea of
Khanas was originated when there was very less amount of restaurant and the owner of khanas
wanted to introduce low price high quality food especially for the students. To make their
restaurant different from others and to survive in the competitive business, the owner kept many
things different from other restaurants like, what would be the name of their restaurant, what
would be the business policy, they would have a live kitchen set up etc. When khanas started
their business the initial days were not easy for them as they didn’t have any previous
experiences and links. He was new to the restaurant business so he had to pass lots of difficulties.
To maintain the business process he needed lots of workers and for that he had to do some role
of those workers.

Now a days Khanas has created a stable position in the market. It is very popular among the
young generation. It has made a renowned position among many fast food restaurants through
their unique business policy, service and most importantly through their food quality.

This assignment gave us a real life application of how strenuous the cost of preparation is and we
appreciate the lesson it taught us.
 Product Details

In a short time khanas has become a very well-known restaurant around the Dhaka city. It is
popular for its quality and great service. They have a very unique strategy for their business.
They attract their customers by giving them a premium quality service in an affordable rate. In
the beginning of their business they never charged extra service charges. Now when khanas is a
very big restaurant and allover Dhaka it has more than five branches. Recently they have started
selling their service on food panda, Pathao food and also Uber eats. Khanas use very high quality
ingredients in their food items. They have different types of food category. Hot fries are one of
the best products of khanas. They use premium quality frozen potatoes for the fries and
especially handmade spices for the seasoning. For the frying they use fresh oil and for the extra
seasoning they use sea salt in spite of any ordinary salt. From one of their employee we collected
all this information.

The following ingredients are used for making “Hot Fries” of khanas .

SERIAL NO. QUANTITY INGREDIENTS

01. 200g Frozen Potatoes

02. AS NEEDED Oil

03. 10g Salt

04. 25g Secret Spices

 Production Process

Mix Salt & Serving

Frozen Frying in
De-Oiling Secret the Fries
potatoes Oil
Spice
mixing

Production of Khana’s hot fries is not so complicated. For making hot fries the

combination of all the ingredients and processing them accordingly is the main challenge

for Khanas. As Raw Material Khanas use Frozen potatoes which they get from their

reliable supplier. Once they get an order at the first they start frying those frozen

potatoes. On the second step when they potatoes are perfectly fried they De-Oil the fries.

Khanas have their own secret spices which is the perfect combination of all the herbs and

spices. After De-Oiling they mix the perfect amount of Salt and Spices in fries and finally

they Serve their delicious hot fries in their paper fries cones.
Direct Materials:

Item Price(tk)
Frozen Potato 5
Oil 5
Secret Spices 10
Salt 3
Sauce 2
Total 25
Direct Material cost per Fries = 25

Direct Labor:

Total salary of employees: 75,000

Total employees: 04
Working days: 30 days
Total burgers produce in a day: 25 pieces

DL per burgers= 100*52.08/750=7

Manufacturing Overhead:

It includes, 1. Maintenance cost, which is 25000 taka per month, 2. A rent worth of 55000 taka
per month and 3. Others costs (20000+15000) =35000 taka in every month

Production unit 600

Variable Manufacturing Overhead cost per unit Total

BDT (per BDT
Packaging 5.00 0 box) 3000
Total variable Manufacturing Overhead BDT
cost 3750
Fixed Manufacturing Overhead cost
BDT
Electricity Bill 25,000
BDT
Employee Salary 75,000
BDT
Rent 50,000
BDT
Total fixed Manufacturing Overhead cost 160,000

Total estimated Manufacturing Overhead BDT

cost 163,750

**Prederetermined overhead rate is applied 20% for fries

Per Unit of Moh=163,750*.20/750

=43tk per unit

Total Cost of the Product:

After adding up direct materials, direct labor and MOH
Product Cost Per Fries = 25+7+43
=75 tk
6.COST-VOLUME PROFIT (CVP) ANALYSIS

Selling Price=90 taka per fries

Total variable cost= 30 taka per fries
Contribution Margin= Selling Price-Total Variable cost
90-30= Tk. 60 per fries

 CM Ratio= Contribution margin/Selling price

=60/90
=66%

BREAK-EVEN POINTS

Contribution Margin= 60 taka per fries

Fixed Expense = Salary expense+ Electric bill+ Rent
=75000+ 25000+50000
=150000*20% [ as they use certain amount for
fries]
=Tk. 30000

Break-even point in unit= Fixed expense/Contribution margin

 =30000/60
=500 units of fries
Break-even point in sales= Fixed expense/CM ratio
=30000/66%
=45,454.54
=Tk. 45,454 (rounded)
MARGIN OF SAFETY:
Break-even unit= 500
Break-even sales = 500*90= 45000 taka
Total sales=90 taka*25units per day*30 days= 67500 taka

Margin of safety in sales=Total sales -Break even sales

=67500-45000
=22500 taka
Margin of safety in percentage= Margin of safety in sales/total
sales
=22500/67500
=33%