1. 1 | P a g e
Scented Candle
Manufacturing and Costing
2. 2 | P a g e
Submitted To: Sheikh Mohammad Rabby (RBY)
Lecturer, Department of Accounting & Finance
Managerial Accounting (ACT333)
Section: 1
Date of Submission: 17th December 2018
Prepared By:
NAME ID
1. Sabrina Rashid 1421297630
2. Rizwan Chowdhury 152083301
3. Fairooz Shaira 1610726030
4. Saad Mohammed Taher 1610926030
5. Afia Zahin 1611773030
3. 3 | P a g e
Letter of transmittal
17 December, 2018
Sheikh Mohammad Rabby
Lecturer, Department of Accounting & Finance
School of Business and Economics
North South University
Subject: Submission of the report on Costing of Scented Candle.
Sir,
It is a great pleasure and privilege for us to present you the report. The Analysis of costing of a
product (Scented Candle) was assigned to us few weeks back as a requirement of the course
completion of ACT333.
Throughout the assignment we had to research a lot which helped us to gain an in depth
knowledge on the analyzing of all costs associated with the product. We have tried our best to
accommodate as much as information and facts as possible following the guidelines you have
provided. We have tried to make this report as relevant as we could.
We are grateful to you for your kind cooperation at every step of our journey in making this
report. We hope you find this report useful and find our hard work and dedication while
evaluating the report.
Sincerely,
1. Sabrina Rashid
2. Rizwan Chowdhury
3. Fairooz Shaira
4. Saad Mohammed Taher
5. Afia Zahin
4. 4 | P a g e
TABLE OF CONTENTS
Title Page Number
Manufacturing Process 06
Maximum Production in a Month 07
Estimated Costs 07
Cost Classification 09
Simple Costing 09
Prime Cost, Conversion Cost 11-12
Full Cost 12
Activity Based Costing 13
Simple Costing vs Activity Based Costing 15
Forecasts
Revenue Budget 16
Production Budget 16
Direct Material Usage Budget 16
Direct Material Purchase Budget 17
Direct Labor Budget 17
Manufacturing Overhead Cost Budget 18
Ending Inventory Budget 18
Cost of Goods Sold Budget 19
Income Statement
Traditional Format 19
Contribution Format 19
Evaluation 20
Sensitivity Analysis 21
Conclusion 22
5. 5 | P a g e
Abstract
This report is to attach our knowledge concerning managerial accounting concepts to product
costing. Our team members decided to work on a product which is Scented Candle. In this
report, we will be looking into the production in a month, cost per month, whole financial and
managerial process of our product. Moreover, it will contain a detailed disruption of all the
costs related parts to the scented candle and the whole manufacturing method. This product is
not only unique in terms of its look but also with its dual functionality of spreading light and a
pleasant aroma in the environment. The report also consists of the whole research we went
through to know the demand for the scented candle since the previous several years. Scented
Candle is not only attractive to look at but also very cost effective. Throughout the process of
manufacturing, we were very conscious about choosing cost effective raw materials and
manufacturing procedures to maintain a reasonable cost. Besides, our targeted consumers are
the middle class and the upper middle class people. This is because the scented candles that are
already available in the market are mostly expensive which limits the consumer from middle
class and below.
6. 6 | P a g e
MANUFACTURING PROCESS
In order to manufacture our product, we have rented a two-room apartment. One room will be
used as the production and the second as the administration and operations. We the owners
will work directly hence eliminating any need for extra labor. Five of us will be responsible for
handling production, marketing and distribution. We found this method very effective and
efficient.
In accordance to our production process of scented candles the following steps were initiated:
1. First of procure raw materials like, wax,jars, candle wick, essence, color etc.
2. Secondly we cut a bar of wax into half. ( 1 wax bar= 2 scented candle jars). And put them
into a heating container.
3. We then heat up the container in a stove until the wax starts to melt. (15 mins)
4. After reaching a minimum temperature, we drop colorings into the wax and stir it well.
5. Meanwhile, we prepare the jar. Carefully we place candle wicks in each jars.
6. Then we pour the melted wax into the jars.
7. At this stage we add the scent/essence into the jar full of colored-melted wax.
8. Then we let them to cool off by putting in a refrigerator.
9. When the wax has settled, we start our designing and packaging
10. Finally we are all ready with a scented candle.
7. 7 | P a g e
MAXIMUM PRODUCTION POSSIBLE IN A MONTH
Total number of labors 5
Working hours in a day 6 hours
Total working hours in a day (5 x 6) hours 30 hours
Total working days in a month 26
Total working hours in a month (26 x 30) hours 780 hours
Hours needed to produce 1 unit .50 hours
Maximum production possible in a month (780/.50) units 1560 units
ESTIMATED COSTS
Direct Materials:
Materials Amount Rate(Taka) Total(Taka)
1. Wax 1 slab 30 30
2. Glass Jar 1 piece 20 20
3. Essence 1ml 4 4
4. Color 1ml 2.14 2.14
5. Candle Wick 1ft 1 1
Total Direct Materials Cost Per Unit 58
Direct Labor:
Daily cost per labor Tk. 200
Working hours per day 6 hours
Hourly cost per labor Tk. (200/6) Tk. 33.33
Production time per unit .50 hour
Labor cost per unit Tk. (33 x .50) Tk. 16.50
8. 8 | P a g e
Manufacturing Overhead:
Total MOH=Tk (9,360 + 20,000) = Tk 29,360
Per unit MOH= Tk 29360/1560 = Tk18.82
Support Cost:
Cost Pool Cost per month (Taka)
Transportation 1,000
Maintenance and Security 2,000
Advertisement 5,000
Total Support Cost 8,000
Per unit Support Cost= Tk 8000/ 1560= Tk 5.13
All manufacturing overhead cost, support cost and direct labor cost are estimated according to
the current market rate
Full Cost Per candle: Tk (58+3.33+18.82+5.13) =Tk 85.28
Cost pool Cost per unit(TK) Total units Total
Ribbon 3 1560 4680
Card 2 1560 3120
Design cost 1 1560 1560
Total Variable MOH 9360
Rent expense 18000
Utility Expense 2000
Total Fixed MOH 20000
9. 9 | P a g e
COST CLASSIFICATION
Cost Cost Type
Direct Costs:
Direct Materials Variable Prime
Direct Labor Variable Prime, Conversion
Manufacturing Overhead:
Ribbon Variable Conversion
Cards Variable Conversion
Desgin Variable Conversion
Rent Fixed Conversion
Utility Expense Fixed Conversion
Support Cost:
Transportation Fixed
Maintenance & Security Fixed
Advertisement Fixed
SIMPLE COSTING
Number of units produced is taken as allocation base for calculating Pre-determined Overhead
Rate (POHR). Estimated production in a month is 1560 units.
Manufacturing Overhead in a month Tk. 29360
Estimated Production Units 1560
POHR Tk. (29360/1560) Tk. 18.82
10. 10 | P a g e
Total Cost per unit:
Direct Material: Cost (Taka)
Wax 30
Jar 20
Essence 4
Color 2.14
Candle Wick 1
Total Direct Material Cost per unit 58 Taka
Direct Labor
Hourly Labor Rate 33.33 taka
Production time per unit .50 hour
Total Direct Labor Cost per unit (33.33 x .50) 16.50
Manufacturing Overhead
Ribbon 3
Card 2
Design Costs 1
Rent 11.53
Utility 1.28
Total MOH Cost in a month
Manufacturing Overhead Cost per unit 18.82
Total Cost per unit 93.32
11. 11 | P a g e
Allocation of Supporting Cost:
Supporting Department Operating
Department
Advertisement Transportation Maintenance &
Security
Manufacturing
Overhead before
interdepartment
al allocation
5000 1000 2000 Tk.15850
Percentage of
allocation to
operating
department
100% 100% 100% Tk.8000
Total Tk.23850
We used direct method for calculating the allocation of support department. There are 3
supporting departments in total which are Transportation, Maintenance & Security and
Advertisement. Supporting departments do not have any allocation between them. All the
support department costs are allocated to the operating department.
Prime Cost
Direct materials Cost (Taka) Direct Labor Cost (Taka)
Wax 30 Hourly Labor Rate 32
Jar 20
Essence 4
Color 2.14
Candle Wick 1
Total Direct Materials 58 Total Direct Labor Cost per unit 32
Total Prime Cost = 58+ 32 = 90
12. 12 | P a g e
Conversion Cost
Direct Labor Cost Manufacturing Overhead Cost
Total Direct Labor Cost per unit 32 Total Manufacturing Overhead
Cost per unit
18.82
Total Conversion Cost = 32 + 18.82 = 50.82 Taka
FULL COST
Direct Material: Cost (Taka)
Wax 30
Jar 20
Essence 4
Color 2.14
Candle Wick 1
Total Direct Material Cost per unit 58
Direct Labor
Hourly Labor Rate 33.33
Production time per unit .50 hours
Total Direct Labor Cost per unit (33.33 x .50) 16.66
Manufacturing Overhead
Total MOH Cost in a month 29360
POHR 18.82
Manufacturing Overhead Cost per unit 18.82 18.82
Support Cost
Total Support Cost 8000
Support Cost per unit (8000/1560) 5.12
Full Cost 98 Taka
13. 13 | P a g e
ABC System
Cost Pool Cost Driver Activity Cost
(Taka)
Activity Activity Rate
Ribbon Number of units
produced
4680 1560 units 3Tk. per unit
Card Number of units
produced
3120 1560 units 2Tk. per unit
Design Labor Hour 1560 780hours 2Tk. per hours
Rent Number of sq.
feet
18000 1500sq. feet 12Tk. Per sq. feet
Utility Number of Labor
Hours
2000 780 hours 3Tk. Per Hour
Maintenance &
Security
Number of labor
hours
2000 780 hours 3 Tk. per hour
Transportation Number of
deliveries
1000 10 deliveries 100Tk. Per
Delivery
Advertisement Sales units 5000 1560 units 3.21 Tk. Per Unit
14. 14 | P a g e
Cost Per Unit:
Direct Materials (39 x 1560) Taka 61,058 Taka
Direct Labor 25997 Taka
Activity Based Costing
Cost Pool Actual Activity Activity Rate Total Cost (Taka)
Ribbon 1560 units 3Tk. per unit 4680
Card 1560 units 2Tk. per unit 3120
Design 780 hours 2 Tk. per hours 1560
Rent 1500sq. feet 12Tk. Per sq.
feet
18000
Utility 780 hours 2 Tk. Per Hour 2000
Maintenance & Security 780 hours 2 Tk. per hour 2000
Transportation 10 deliveries 100Tk. Per
Delivery
1000
Advertisement 1560 units 3.21 Tk. Per Unit 5000
Activity Based Cost 37,360
Total Cost 124,415
Cost Per Unit 80
15. 15 | P a g e
SIMPLE COSTING vs. ACTIVITY BASED COSTING
Simple Costing Activity Based Costing
Revenue (100 x 1560) 156,000 Revenue (100x 1560) 156,000
Less: COGS (65 x 1,560) 101,083 Less: DM + DL 87,055
Gross Profit 59,917 Activity Based Cost 37,360
Less: Operating Expense 8000 Total (124,415)
Net Income 51,917 Net Income 31,585
Net Profit Margin 33% Net Profit Margin 20%
16. 16 | P a g e
FORECASTS
Revenue Budget:
The budgeted sales for the current month are 1560 units based on current market demand.
Budgeted Sales for the month 1560
Selling Price 100 Taka
Revenue Budget (1560 x 100) Taka 156000 Taka
Production Budget:
Units
Budgeted Sales 1404
Add; Target Ending Inventory (1560 x 10%) 156
Total Units Needed 1560
Less; Beginning Inventory 0
Units Needed to be Produced 1560
Direct Material Usage Budget
Materials Cost per unit
product (Taka)
Total Units
Needed
Total Cost
(Taka)
1. Wax 30 1560 46800
2. Jar 20 1560 31200
3. Essence 4 1560 6240
4. Color 2.14 1560 3338
5.Wick 1 1560 1560
Total Cost of Direct Materials to be used in a month 61058 Taka
17. 17 | P a g e
Direct Materials Purchase Budget
Wax (Bars) Jar Essence
(bottles)
Color
(bottles)
Wick
Production Usage 3120 1560 26 26 1560ft
Add; Target Raw
Materials Ending
Inventory (5%)
156 78 2 2 78
Total Materials
Needed
3276 1638 28 28 1638
Less; Beginning
Inventory
0 0 0 0
Raw Materials
Needed to be
Purchased
3276 1638 28 28 1638
Cost per unit 30 20 4 2.14 1
Purchase Cost (Taka) 98280 32760 112 60 1638
Total Purchase Cost = 148,923 Taka
Direct Labor Cost Budget:
Daily cost per labor Tk. 200
Working hours per day 6 hours
Hourly cost per labor Tk. (200/6) Tk. 33.33
Total Labor Hours Needed (26 days * 6hrs) 156 hours
Total Labor Hour Cost Tk. (156*33.33*5) Tk. 25997
18. 18 | P a g e
Manufacturing Overhead Cost Budget:
Cost Pool Amount Cost per month
(Taka)
Ribbon 1560 ft. 1560
Card 1560 pcs. 3120
Design 1560 units 1560
Rent 18000
Utility 2000
Total Manufacturing Overhead Cost 26240
Ending Inventory Budget:
Direct Materials Ending Inventory
Units
Cost per unit (Taka) Total Cost (Taka)
Wax 156 60 9360
Jar 78 20 1560
Essence 2 60 120
Color 2 60 120
Wick 78 5 390
Cost of Ending DM
Inventory
11550 Taka
Finished Goods
Inventory
156 78.28 12212 Taka
Total Ending Inventory 23762 Taka
19. 19 | P a g e
Cost of Goods Sold Budget:
Beginning Finished Goods Inventory 0
Cost of Goods Manufactured:
Direct Material 61058
Direct Labor 25997
Manufacturing Overhead 26,240
Cost of Goods available for sale 113,295
Less; Ending Finished Goods Inventory 12,212
Cost of Goods Sold 101083
Income Statement
Traditional Format:
Per Unit (Taka) Total (Taka)
Sales 100 1,56,000
Less; Cost of Goods Sold 65 101,083
Gross Profit 35 54,917
Less; Other Expenses 6 8000
Net Income 29 46917
Contribution Format:
Per Unit (Taka) Total (Taka) Percenta
ge
Sales 100 156000 100%
Variable Costs Direct Material 58 90480
Direct Labor 3.33 5200
Variable MOH 6 9360
Less; Total Variable Cost 67.33 105040
64.78%
Contribution Margin 32.67 50960
35.22%
Fixed Costs Fixed MOH 17.95 28000
Support Cost 5.13 8000
20. 20 | P a g e
Less; Total Fixed Cost 23.08 36000
Net Income 9.59 14960
The selling price for our scented candle is 100 taka. As we can see in the market, it is sold at
150-200 tk. But after analyzing all the cost we can cover up our cost within 100 taka along with
the profit. So our price is lower compare to our competitors.
EVALUATION
❖ Break-even Point (Units) = 36000/32.67 = 1101.92 units ≈ 1102 units.
❖ Break-even Point (Sales) = 36000/.3522 = 102,214.65 Taka
❖ Margin of Safety = (156,000 – 102,214.65) Taka = 53,785.35 Taka
SENSITIVITY ANALYSIS
Current (Taka) 12% increase
in DM Price
(Taka)
10% decrease
in demand
(Taka)
15%increase
in demand
(Taka)
Budgeted Sales Unit 1560 1560 1404 1794
Selling Price 100 100 100 100
Sales Revenue 156000 156000 140400 179400
Direct Materials
Wax 30 34 30 30
Jar 20 22 20 20
Essense 4 4.5 4 4
Color 2.14 2.4 2.14 2.14
Wick 1 1.1 1 5
Total Direct Material Cost 57.14 64 57.14 57.14
Direct Labor 3.33 3.33 3.33 3.33
MOH per unit 18.82 18.82 20.91 16.36
Total Cost Per Unit 79.29 86.15 81.38 76.83
Cost of Goods Sold 101083 134394 114258 137833
Supporting Expense 8000 8000 8000 8000
Net Income 46917 13606 18142 33567
Variable Expense per unit 67.33 73.33 67.14 65.67
Contribution Margin per unit 32.67 26.67 32.86 34.33
Break-even point (Units) 1102 1305 1096 1049
Break-even point (Sales) 102214.65 134983 92307 144000
21. 21 | P a g e
Margin of Safety 53785.35 21017 63693 12000
CONCLUSION
Scented candle is a sophisticated product, which has a basic manufacturing process and easy to
produce. The product is unique itself as it has dual function of spreading light and spread
pleasant aroma in the environment. Our target group are the middle class and the upper
middle class people. We are trying to give the product with a reasonable price and generate an
attractive amount of profit. That is why we chose to scented candle because we think it will
satisfy the customer.
