This is a project i worked with 3 other students. This project deals with the analysis of costs of manufacturing, pricing, budgeting. The product that we have chosen was Wooden Hanger.

1. A Group Project on “Wooden Hanger” Production Cost Analysis &
Budgeting.
Managerial Accounting: ACT333
Section: 05
Submitted To:
Sheikh Mohammad Rabby (RBY)
Lecturer,
SBE, North South University.
Date of Submission: 23/03/2016
Submitted By:
Name ID
Bidhan Chandra Halder 1410898030
Rifat Hossain Khan 1411038030
Md.Shabit Bin Jalal 1411072630
Md. Tanvir Islam 1410897630

2. 1
Letter of Transmittal
23rd
, March, 2016
Sheikh Mohammad Rabby (RBY)
Lecturer,
SBE, North South University
Subject: Submission of Group Project on “Wooden Hanger” production cost analysis &
budgeting.
Dear Sir,
Here, we are presenting to you the project report on “Wooden Hanger” that we manufacture. We
have found out its cost, operating income, breakeven point, selling price and other required
information by analyzing all the factors. It has been done according to your project guidelines.
We pray and hope that you will accept and like our project.
Thank you.
Yours sincerely,
Name ID
Bidhan Chandra Halder 1410898030
Rifat Hossain Khan 1411038030
Md.Shabit Bin Jalal 1411072630
Md. Tanvir Islam 1410897630

3. 2
Abstract
This project deals with the analysis of costs of manufacturing, pricing, budgeting. The product that
we have chosen is Wooden Hanger. This product actually belongs to home decor industry. Initially,
this is a too much necessary product. A unique design that more or less catch the eyes of the
customer’s and will derive the intention to buy this for their purposes. In this project, we have
discus estimation of all related costs like Direct & indirect materials costs, Direct & indirect labor
costs, etc. Then we have categorized all the cost under direct or indirect & Fixed or variable cost
categories. Using the simple costing system, we have determined the unit product cost of our
product, we have also determined the prime cost, conversion cost & full cost. In addition, we have
determined per unit product cost using Activity Based Costing system. Product-line profitability
report is also done using simple costing & Activity Based Costing. The pricing strategy of our
product is also discussed here. All types of budgets that are required are prepared in this report as
well. Moreover, a budgeted income statement is discussed using both traditional and contribution
margin format. We have also determined the break-even point, break-even revenue & margin of
safety.

4. 3
Table of Contents
Topic Page No.
Introduction 4
Manufacturing process 4
Production capacity 5
Cost analysis 6
Prime cost, conversion cost and full cost 11
Simple costing 11
ABC costing 13
Pricing strategy 15
Budgets 16
Break-even and Margin of Safety 21
Sensitivity analysis 22

5. 4
Introduction
We started our journey from our own experience and inspired from New-Market; where sellers
sell many lifestyle products and they grabs many customers. Therefore, we came up with this idea
of making wooden hanger to satisfy the customers. We want to do something out of the box and
therefore we finalized this. Our company name is Wood Kingdom.
This is basically a product of wood industry and it is more attractive for the customers. The product
is very necessary and customers are much responsive towards buying these sorts of products. We
basically want to make a product which is affordable and people will love to gain interest when
they get any product with a low price. Hopefully, we would stand out because of our low prices.
Our target market is to sell in Dhaka and Rajshahi. So in these cities we have many competitors.
The competitors are Aarong, New-Market shops and the other shops in the local market. As they
are in the business for a long time so we have to use a very different but effective strategy to stand
against these competitors and established our company and product in the market. They sell this
product at more than 300tk.
The Manufacturing Process
Collect bundle of
wood and screw
from shop
Cut these
wood into
different size
Process by
saw and
sand paper
Drill those
wood
Adjust
different
wood with
screw

6. 5
Estimations
Determination of the maximum production possible in a month (Production
Capacity)
We have decided to work 24 days per month. We will be working for 9 hours. Each hour 1 stages
(Assembling) of production, will be divided among the 4 workers. In this stage requires 4 hours
of labor, therefore each individual worker shall be devoting 1 direct labor hours behind each unit.
As each unit requires 1 hours to be produced. So, the number of units produced each day stands
up to be 9 units. Hence our maximum production capacity will ultimately be 216 units (24days*9
units). So,
Total Labor = 4 employees.
Total wage hour on a day = 9 hr.
Total working day on a month = 24 days.
Total Labor hours needed for a product = 4 hr.
Total working hours in a day = 4 employee × 9 hrs
= 36 hr.
Total working hours in a month = 36 × 24
= 864 hr.
Total Monthly Production = 864 hr ÷ 4 hr
= 216 units.

7. 6
Cost analysis
Direct Materials
Direct Materials Unit Cost Quantity (Q) Cost Source
Wood (Bundle) 100 tk. 1 100 tk. Badda Timber
Screw 10 tk. 1 10 tk. Hardware Shop
Total 110 tk.
Direct Labor
Direct Labor Wage Rate Labor Hour Per Unit Total Wage Rate
Labor 10 tk. 4 hrs 40 tk.
Manufacturing Overhead
Manufacturing Overhead Total Cost Source
Depreciation of Table (4000 ÷ 60) 67 tk. Straight Line Method
Depreciation of Chair (2500 ÷ 60) 42 tk. Straight Line Method
Sand Paper 200 tk. -------
Utility 1,500 tk. -------
Rent 6,000 tk. -------
Transportation Cost 500 tk. -------
Total Cost 8,308 tk. -------
Fixed Assets
Fixed Assets Unit cost Quantity Total cost Source Depreciation
Chair 500 tk. 5 2,500 tk. RFL 4,000/60 = 67 tk.
Table 2,000 tk. 2 4,000 tk. OTOBI 2500/60 = 42 tk.
Total 6,500 tk.

8. 7
Manufacturing overhead rate = (Manufacturing overhead total cost / Total number of units)
= 8,308 tk. / 216 unit = 38.46 tk. per unit
Support and selling cost
Cost names Cost in total units Source
Marketing cost:
Telephone cost 300 Airtel
Leaflet Cost 300 S.R Products
Packaging Cost:
Carton 120 S.R Products
Total cost 720
Cost Classifications
The costs are classified below according to their nature:
Cost Items Assignment of Cost Cost Behavior
Direct Material Direct Variable
Direct Labor Direct Variable
Depreciation of Table Indirect Fixed
Depreciation of Chair Indirect Fixed
Rent Indirect Fixed
Utility Indirect Fixed
Transport Indirect Fixed
Marketing cost Indirect Fixed
Packaging cost Indirect Fixed

9. 8
Allocation of Support Cost
We have one operating department (Production department) and three support department
(telephone cost, leaflet cost and packaging cost). For this reason we are using the direct method to
allocate these three costs to the Production department.
Costs Support department Operating department
Telephone
cost Leaflet cost
Packaging
cost Production department
Cost to be allocated 300 300 120
Allocation of telephone
cost (300) 300
Allocation of leaflet
cost (300) 300
Allocation of
packaging cost (120) 120
Total cost allocated
0
0 0 720
Step down method
Costs Support department Operating department
Telephone
cost
Leaflet
cost
Packaging
cost Production department
Cost to be allocated 300 300 120
Allocation of telephone
cost (1/3) (300) 100 100 100
Allocation of leaflet cost
(1/2) (400) 200 200
Allocation of packaging
cost 100% (420) 420
Total cost allocated 0 0 0 720

10. 9
Reciprocal method
Costs Support department Operating department
Telephone
cost
Leaflet
cost
Packaging
cost Production department
Cost to be allocated 300 300 120
1st Allocation of
telephone cost (1/3) (300) 100 100 100
1st Allocation of leaflet
cost (1/3) 133 (400) 133 134
1st Allocation of
packaging cost (1/3) 118 118 (353) 117
2nd Allocation of
telephone cost (1/3) (251) 84 84 83
2nd Allocation of leaflet
cost (1/3) 67 (202) 68 68
2nd Allocation of
packaging cost (1/3) 51 51 (152) 50
3rd Allocation of
telephone cost (1/3) (118) 39 40 39
3rd Allocation of leaflet
cost (1/3) 30 (90) 30 30
3rd Allocation of
packaging cost (1/3) 23 23 (70) 24
4th Allocation of
telephone cost (1/3) (53) 18 18 17
4th Allocation of leaflet
cost (1/3) 14 (41) 14 13

11. 10
4th Allocation of
packaging cost (1/3) 11 11 (32) 10
5th Allocation of
telephone cost (1/3) (25) 8 8 9
5th Allocation of leaflet
cost (1/3) 6 (19) 6 7
5th Allocation of
packaging cost (1/3) 5 5 (14) 4
6th Allocation of
telephone cost (1/3) (11) 4 4 3
6th Allocation of leaflet
cost (1/3) 3 (9) 3 3
6th Allocation of
packaging cost (1/3) 2 2 (7) 3
7th Allocation of
telephone cost (1/3) (5) 2 2 1
7th Allocation of leaflet
cost (1/3) 2 (4) 1 1
7th Allocation of
packaging cost (1/3) 1 1 (3) 1
8th Allocation of
telephone cost (1/3) (3) 1 1 1
8th Allocation of leaflet
cost (1/3) 0 (2) 1 1
8th Allocation of
packaging cost (1/3 0 1 (2) 1
9th Allocation of
telephone cost (1/3) 0 (1) 0 1

12. 11
Prime cost, conversion cost and full cost
Prime Cost= Direct Material + Direct labor
= (110 tk. x 216 units) + (40 tk. x 216 units)
= 32,400 tk.
Conversion cost = Direct Material + Manufacturing overhead cost
= (40 tk. x 216 units) + 8,309 tk.
= 16,949 tk.
Full cost = Variable Cost + Fixed Cost
= (110tk.x 216unit) + (40tk. x 216unit) + 10,600 tk. + 8,309 tk.
= 51309 tk.
Simple Costing
Total no. of employees = 4 employees
Hours needed per unit = 1 hrs.
Direct labor hours/unit (1hrs x 4 employees) = 4hrs
Total Direct labor Hours (216 units x 4hrs) = 864 labor hours
MOH allocation (8308 total MOH cost / 864 labor hours) = 9.62 tk. per total direct labor hour

13. 12
Profitability Report
Revenues (195 units x 250 tk) 48,750
Less: Cost of goods sold
Opening inventory finished goods 0
Direct Material (110 tk × 216 unit) 23,760
Direct Labor (40 tk total wage rate x 216 units) 8,640
Manufacturing Overhead Cost ( 9.62 tk per unit Manufacturing
overate rate x 216 unit ) 2,077
Less: Closing Inventory Finished Goods (21 unit x 160 tk) (3,360)
Total cost of goods sold (31,117)
Gross profit 17,633
Less: Selling expenses
Marketing costs ( Telephone cost + leaflet cost) (600)
Packaging cost (120)
Operating income 16,913

14. 13
Activity Based Costing
We chose appropriate cost drivers for the items under manufacturing overhead and support costs
in and the explanations are given below:
Activity Cost Driver Explanation
Depreciation of Table No. of Units
Sold
The higher the amount of direct material used, the
more often a table is needed.
Depreciation of Chair No. of Units
Sold
Utility of the chairs is proportional to the number
of units sold.
Sand Paper No. of Units
Produced
The more numbers of unit produced, the more
need of a sand paper is needed.
Rent Floor Area in
sq. ft
Depending on the area of the production facility
being used, the rent of the workplace will vary.
Utility No. of Units
Produced
Depending on the number of units produced,
consumption of electricity, water and etc. will
vary.
Transport Cost No. of Delivery The transport cost will occur only on the number
of times workers travel to go for the delivery.
Marketing Cost No. of Units
Sold
Marketing cost is determined on the basis of the
no. of Units Sold.
Packaging Cost No. of Units
Sold
The number of carton will depend on the number
of units sold.

15. 14
Manufacturing Overhead allocation
Activity
Total Budgeted
Cost Cost Driver
Units of Cost
Driver Activity Rate
Depreciation of
Table 67 No. of Unit 216 0.31
Depreciation of
Chair 42 No. of Units sold 195 0.21
Sand Paper 200 No. of Unit 216 0.93
Rent 6,000 Floor area in s.ft 400 15.00
Utility 1,500
No. of Units
produced 216 6.94
Transport cost 500 No. of delivery 10 50.00
Marketing cost 600 No. of Units sold 195 3.08
Packaging cost 120 No. of Units sold 195 0.62
Profitability report (ABC costing)
Revenues (195 units x 250 tk) 48,750.00
Less: Cost of goods sold
Opening inventory finished goods 0.00
Direct Material (110 tk × 216 unit) 23,760.00
Direct Labor (40 tk total wage rate x 216 units) 8,640.00
Less: Manufacturing Overhead:
Sand Paper 200
Rent 6,000
Utility 1,500
Transport 500
Depreciation of Table 67
Depreciation of Chair 42

16. 15
Less : Closing inventory of finished goods (3360)
Total Cost of goods sold (37,348)
Gross Profit 11,402
Less: selling expense
Marketing cost (600)
Packaging cost (120)
Operating income 10,682
Pricing strategy
We are using cost based pricing and determine and select the strategy based on some factors:
Customers demand for the product, Competitors prices and Cost of the product. We priced
our product according to market demands and it can fluctuate based on market conditions.
Currently, the selling price of our product is 250 taka as competitors are charging more than 300
taka for this. Our competitors are Aarong, New-Market shops and the other shops in the local
market. So we want to keep that price lower to be competitive in the market and for that we have
to maintain lower price from competitors to attract more customers and gain more profits by selling
large amount of hangers to customers.

17. 16
Budgets
Schedule 1: Revenue budget
Product name Units to be sold
Selling price per
unit
Total
revenue
Wooden Hanger 195 250 48,750
Schedule 2: Production Budget
Wooden Hanger
Budgeted units to be produce 216
Add: Target ending inventory of finished goods(10% sales) 22
Total required units 238
Less: Beginning finished goods inventory 0
Units of finished goods to be produced 238
Schedule 3A: Direct materials usage budget
Materials
Wood Screw Total
Physical units budget:
Direct material requirement
Wood (216 units x 1 bundle) 216
Screw (216 unit x 1 bundle) 216
Total quantity of direct material to be
produced 216 216

18. 17
Cost Budget:
BDT BDT
Available from beginning direct material
inventory
Wood 0
Screw 0
To be purchased and used this period:
Wood 21,600
Screw 2,160
Direct materials to be used to this period 21,600 2,160 23,760
Schedule 3B: Direct materials purchase budget
Physical units budget: Wood Screw
To be used in production from schedule 3A 216 216
Add: Target ending inventory (15% of direct materials
to be used) 32 32
Total requirement 248 248
Less: Beginning inventory direct materials 0 0
Purchase to be made 248 248

19. 18
Cost budget: BDT BDT
Wood (248 unit x 100 tk.) 24,800
Screw (248 unit x 10 tk.) 2480
Direct materials to be purchased 24,800 2,480
Schedule 4: Direct labor budget
Product
Name
Output units to be
produced (Schedule
2)
Direct
manufacturing
labor hours per unit
Total
hours
Hourly
wage rate Total
Wooden
Hanger 238 4 950 10 9,504
Total labor cost needed to be produced 216 units = 9,504 tk x 216 unit = 2,052,864 tk.
Schedule 5: Manufacturing overhead budget
Manufacturing overhead Budget
Fixed manufacturing overhead Costs (BDT)
Depreciation of Table 67
Depreciation of Chair 42
Rent 6000
Utility 1500
Transportation cost 500
Sand paper 200
Total manufacturing overhead cost 8309

20. 19
Units of input
Cost per Unit of input
(BDT) Total cost
Direct material:
Wood 1 bundle 100 tk. 100
Screw 1 bundle 10 tk. 10
Direct labor 4 hr/ DLHS 10tk. 40
Manufacturing Overhead
(8309/216) 38
Total manufacturing cost per
unit 188
Schedule 6: Ending inventory budget
Quantity Cost per unit Total cost
Direct Materials
Wood 32 100 3,240
Screw 32 10 324
Finished goods 22 188 4,071
Total ending inventory 7,635
Schedule 7 : Cost of goods sold budget
Beginning Finished inventory 0
Add: Cost of goods manufactured
Direct materials used 3A 23,760
Direct manufacturing labor 4 9,504
Manufacturing overhead 5 8309
Cost of goods available for sale 41,573
Less: Ending finished goods inventory 4,071
Cost of goods sold 37,502

21. 20
Preparing a budgeted income statement in both traditional and contribution format:
Schedule 8: Budgeted Income statement (Traditional Format)
Per unit (BDT) Total (BDT)
Revenue 250 48,750
(-) Cost of goods sold (188) (37,502)
Gross profit 62 11,248
(-) Operating Cost
Marketing cost (3) (600)
Packaging cost (0.56) (120)
Net Income 58.20 10,528
Schedule 9: Budgeted income statement (Contribution format)
Per unit (BDT) Total (BDT)
Revenue 250 48,750
Less: Variable cost
Direct material (121) (23,760)
Direct labor (48.62) (9,504)
Packaging cost (0.62) (120)
Contribution margin 78.92 15,366
Less: Fixed costs
Marketing cost (600)
Manufacturing overhead
cost (8309)
Net operating income 6,457

22. 21
Break Even and Margin of safety
Break-even point = Fixed cost/ CM per unit
= (600 + 8,309) tk. / 78.92 tk. per unit
= 112 unit
CM ratio = CM per unit/ Selling price
= 78.92 tk. per unit / 250 tk.
= 31.58%
Break even revenue = Fixed cost/ CM ratio
= 8,909 tk. / .3158
= 28,211 tk.
Margin of safety units = Budgeted sales -Break even sales
= 216 unit - 112 unit
= 104 unit
Margin of safety (%) =Margin of safety in tk. / budgeted revenue
= 28,211 tk. / 48,750 tk.
= 57.87%

23. 22
Sensitivity analysis
Key Assumptions
What if
Scenario
Units Sold Selling Price Direct
Material
Cost
Budgeted Operating
Income
Master Budget 195 250 tk. 110 tk. 6,457 tk
Scenario - 1 195 250 tk. 123 tk. 6,232 tk 12%
Increase in
the price of
direct
materials
Scenario - 2 176 250 tk. 110 tk. 1,707 tk. 10%
decrease in
demand of
the product
Scenario - 3 224 250 tk. 110 tk. 13,707 tk. 15%
Increase in
demand of
the product