Presented by:

Tun Ko Ko
STAR Clothing Myint Myat Sandy Htay
Industry Su Wai Hninn Aung
Hninn Shwe Sin Win
CONTENTS
 Importance of costs in the pricing strategy
 Design a costing system
 Improvements to the costing and pricing systems
 Forecasting techniques to make cost and revenue decisions
 The sources of funds
 Process for cost reduction management
 Evaluation the potential for the use of activity-based costing
 Appropriate budgetary targets
 Creation of a master budget
 Actual expenditure and income to the master budget
 Evaluation budgetary monitoring process
INTRODUCTION

 Our industry is related to clothing for men and

women; it’s named STAR clothing industry.
The clothes with the best quality for
manufacturing and distributing for not only
Yangon but also downtown and divisions.
Vision
 To penetrate Global market and get well-known brand
with good quality in Division & State in Myanmar
 To provide customers with latest fashions to make them
look and feel fantastic
Mission
 To get increased sales in Upper & lower division of
Myanmar
 To increase customer awareness
Objectives
 To make promotion to catch more loyal customer
from Upper & lower Myanmar in 2017
 To create fantastic design for adult people in the
market
 To get sale of 500 units of woman and 300 units of
man in a month
Important of costs in pricing strategy

 To achieve success by finding the price point and get

more profit in sales
 To understand how pricing is affected on business
model
 To affect the profit margin, sale volumes, market
share and position
 To decide profit margin which is to form the price of
product
Costing system use within an organization

 Costing System
To estimate the products for profitability analysis,
inventory valuation and cost control.
 Job Order costing system
Assigned in manufacturing costs to individual
product or batches of products
Created a job cost record for each product or
special order
PROCESS COSTING SYSTEM

 Assigned in manufacturing costs to separately by each process

There are several steps in the traditional costing process.

 Identify indirect costs

 Estimate indirect costs for the appropriate period (month, quarter, year)

 Choose a cost-driver with a causal link to the cost (labor hours, machine

hours)

 Estimate an amount for the cost-driver for the appropriate period (labor

hours per quarters, etc.)

 Apply overhead to products using the predetermined overhead rate

By traditional costing system, the production
cost per units is as follows;
Woman Man

Direct material Cotton (1500k*15y)2250 (1500k*2y)3000

Reel (10k*5y) 50 (10k*3y)30

Button (30k*5)150 (30k*5)150

Direct labor (300k*4 hr)1200 (300k*3hr) 900

Overhead (50k*4 hr) 200 (50k*3 hr)150

Total 3850 4230

So Total for woman=3850 and man= 4250
Woman Cloth= 1500 per year
Man Cloth= 1000 per year
OAR = Overhead/ Direct Labor hour = 450,000/9000hr
= 50 kyats per hour
Improvements of costing system by using activity based
costing
The Steps for implementation of activity costing are:

 identify major activity

 created each activity pool
 assign cost to activity cost
 calculated each activity pool
 assigned overhead costs to products
ACTIVITY BASED COSTING SYSTEM
Woman

Material (2450 kyat* 1500 unit) 3,675,000

Labor (1200 kyat*1500) 1,800,000

Overhead rate for Handling Cost 58,331

Overhead rate for machine activity 33,600

Overhead rate for set up 66,600

Overhead rate for quality control 56,250

Total 5,689,781

Production unit 1500units

 Man
Material (3180 kyat* 1000unit) 3,180,000
Labor (900 kyat*1500) 1,350,000
Overhead rate for Handling Cost 41,665
Overhead rate for machine activity 16,800
Overhead rate for set up 33,300
Overhead rate for quality control 43,750
Total 4,648,715
Production unit 1000 units
Cost per unit =4705.5 kyats
FORECASTING TECHNIQUES TO MAKE COST AND REVENUE
DECISIONS OF AN ORGANIZATION

Two different types of forecasting techniques,

quantitative technique and qualitative technique.
 Quantitative technique- Time series analysis and
Casual modeling
 Qualitative technique- Executive opinions, Delphi
method, Sales force polling and consumer surveys.
QUANTITATIVE TECHNIQUE

 Time series analysis- useful when the

manager has a lot of historical data
available.
 Casual modeling- useful in planning and
decision making. It includes regression
models, economic models and economic
indicators.
 Regression models- Used to predict dependent
variable on the basis of independent variable.
 Economic models- Use of several multiple-
regression equations to consider the impact of
major economic shifts.
 Economic indicators- Various population statistics
or parameters predict organizationally relevant
variables such as discretionary income.
QUALITATIVE TECHNIQUE

 Executive Opinions: The views of executives from

sales and production generate a forecast about future
sales.
 Delphi Method: In which a panel of experts is
questioned individually about their perceptions of
future events.
 Sales Force Polling: Some companies use as a
forecast salespeople to have contacts with
customers.
 Organization will use both quantitative and
qualitative forecasting techniques.
 For quantitative technique, we will use time series
analysis in sales and production by using data of
sales from last year.
 For qualitative technique, we will use sales force
polling technique as sale people have continual
contact with the customers .
THE SOURCES OF FUNDS AVAILABLE TO AN
ORGANIZATION FOR A SPECIFIC PROJECT

Mainly there are four sources of funds are as

follow-
 Retained Earning
 Loan
 Equity Finance
 Government Grants
1.Retained earning

 Retained earning is the amount of money obtained by the

company to be reinvested in its core business.

2.Loan
 A loan is a debt provided by organization or individual to
another at an interest rate and date of repayment.

3.Equity finance
 Equity finance is the amount of capital by selling company’s
stocks to investors. In return for the investment, the
shareholders receive ownership interests in the company.
4.Government grants
 A financial award given by the federal, state or
local government to a grantee.
 The organization will apply retained earning to be
reinvested in expanding our business.
 The next option is loaning a specific amount of
money at a specific interest rate and date of
repayment if we do not have enough fund.
RECOMMEND PROCESSES THAT COULD MANAGE COST
REDUCTION

Among these methods, our Star clothing

industry will use Just-In-Time (JIT) System,
Benchmarking and Total Quality Management
(TQM).
JUST-IN-TIME (JIT) SYSTEM

By using JIT system, there are some benefits:

 Minimizing warehouse cost
 Handling supply chains effectively
 Having seamless customer service
 Reducing unnecessary wastage
 Moderating production mistakes
BENCHMARKING

 Benchmarking is an effective check on the current

market
 It is critical to ensure like-for-like comparisons.
Benchmarking expressions more than where we
position
 By exactly knowing what others have done, and
applying and realizing those best practices,
TOTAL QUALITY MANAGEMENT

 Total Quality Management (TQM) was

developed in the 1980's .
 A method to improving effectiveness,
competitiveness, efficiency, and flexibility in
order to best suit the customer's needs.
 There are some advantages of using TQM for cost
reduction:
 Emphasizing the needs of the market
 Being assures better quality performance in every sphere of
activity
 Helping in checking non-productive activities and waste
 Get helpful in meeting the competition
 It helps in developing an adequate system of communication
and
 Continuous review of progress.
4.2
APPROPRIATE BUDGETARY TARGETS FOR ORGANIZATION

Budget Target
Sales Target 30,000,000 Kyats
Expenses:
Material expenses 6,500,000 Kyats
Labor Cost 2,7,00,000 Kyats
Manufacturing Overhead Expenses 2,200,000 Kyats
Selling and Admin Overheads 1,000,000 Kyats

Profit 14,000,000 Kyats

PARTICIPATE IN THE CREATION OF A MASTER BUDGET FOR ORGANIZATION

Cost Data

 Direct material- Cotton 1500 kyats per yard

 Reel 10 kyats per yard

 Button 30 kyats per button

 Labor Cost 300 kyats per hour

Raw Material Usage
Woman Man
Direct Material-Cotton 1.5 yards 2 yards
Reel 3 yards 5 yards
Button 5 button 5 button
Labor usage 4 hour 4 hour
The company creates a master budget for previous year 2015 in
order to prepare a master budget as 2016. Company should
evaluate the following budgets;
 Sale Budget
 Production Budget
 Material Usage Budget
 Material Purchase Budget
 Labor Cost Budget
 Production overhead cost Budget
 Selling and administration Budget
 Cash Budget
Cash Budget
2nd 3rd
1st Quarter Quarter Quarter 4th Quarter Total

Receipts 3,000,000 7,000,000 5,000,000 7,500,000 22,500,000

Payments

Material 500,000 1,000,000 1,500,000 2,800,000 5,800,000

Wages 300,000 700,000 1,000,000 500,000 2,500,000

Other 100,000 200,000 150,000 50,000 500,000

Total Payment 8,800,000

Cash Surplus / (deficit) 13,700,000

(+) Opening Cash Balance 300,000

Closing Cash Balance 14,000,000

BUDGETED PROFIT AND LOSS A/C FOR 2015

 Sales 26,800,000
 (-) Cost of Goods Sold
 Production Cost
 Raw Material Purchase 6,608,000
 (+) Opening Raw Material 479,000
 (-) Closing Raw Material (242,000)
 Raw Material Consume 6,845,000
 Direct Labor 2,700,000
 Prime Cost 9,545,000
 Prime Cost 9,545,000

 Production overhead 2,350,000

 11,895,000

 (+) Opening Finished Goods 1,661,470

 (-) Closing Finished Goods (1,681,250)

 (11,875,220)

 Gross Profit 14,924,780

 Administrative & Selling Overhead (1,050,000)

 Budgeted Net Profit 13,874,780

Budgeted Balance Sheet as at 2016
2016
Kyat Kyat
Fixed Assets
Building & Equipment 5,000,000
(Less) Depreciation (1,000,000)
4,000,000
Motor Vehicle 7,000,000
(Less) Depreciation (2,800,000)
4,200,000

8,200,000
Current Assets
Stock Finished Goods 1,681,250
Raw Material 242,000
Debtors 4,500,000
Cash 14,000,000

20,423,250
Less: Current Liabilities
Creditors (2,608,000)

26,015,250

Finance by,
Ordinary share capital 10,000,000
Revenue Reserve 2,240,470
Profit for the year 13,774,780

26,015,250
3.3
Budgeted Actual Variance Condition
Sale 26,800,000 27,000,000 200,000 (Favourable)
Revenue
Production 2,450,000 2,420,000 30,000 (favourable)
overhead
Labor Cost 2,700,000 2,700,000 (0) -
Administrati 1,050,000 1,100,000 50,000 (adverse)
ve & Selling
Overhead
Raw 6,815,000 6,820,000 5,000 (adverse)
Material
Cost
EVALUATION BUDGETARY MONITORING PROCESS

 To answer the questions and survey

 To monitor regularly throughout the year: quarterly
 Moreover, key processes to effectively manage
approved budgets include: Budget monitoring reports,
Reporting on budget variances, Explanation of
variances, Corrective action require and Effect over
the whole year
CONCLUSION

 Our Star Clothing Industry budget will be

estimated the most approximately in 2016.
Moreover we have already defined how to reduce
the cost, how to evaluate the budgetary and so on.
Our industry will reach to our objectives and
goals with the exact budget at finance department.
REFERENCES
 http://businessknowledgesource.com/manufacturing/
using_tqm_to_reduce_costs_and_improve_quality_025572.html

 http://www.yourarticlelibrary.com/total-quality-management/6-
advantages-of-total-quality-management-tqm/26206/

 http://www.entrepreneurship.org/resource-center/monitoring-the-
budget.aspx

 http://www.shiprocket.in/reduce-inventory-cost-just-time-inventory-
management/
 Any Questions
&
Thanks for your attention.