Investor Report for Pet Products Company
Introduction
The Pet Products Company report highlights various aspects crucial for investors regarding the company. The vision of Pet Products Company seeks to offer effective and safe collars, leashes, and harnesses for pets. Notably, the vision seeks to enhance the company’s profitability and also offer reliable and safe products. Further, the company aims to provide quality and safe collars, leashes, and harnesses for pet lovers to have enjoyable times with their pets while operating outside their houses. With the company’s vision and mission, the company hopes to achieve attractive profit margins in the future of five years. The company also plans to expand its network and product lines to enter the global market by offering different products that are used for pets. Remarkably, this is expected to take place within the next ten years.
Purpose
The purpose of this report is to offer an overview of the company’s manufacturing aspects and the forecasted future of the company. In that line, the financial income statements, cost variances, contribution margin analysis, and profits and price targets are described in the report. The presentation of these aspects includes illustrations based on tables to highlight how the profits and accounting methods are utilized in coming up with the final figures. Notably, the presentation of this report aims at appealing to investors to borrow the idea of the company and invest their capital in the company to see its mission and vision are achieved. Therefore, investors should pay attention to this report because it contains crucial aspects that will highlight why it will be a profitable venture for them. It is our appeal to the investors to combine with us to ensure the company succeeds based on the profitability and viability shown in this report. Do you need help with your assignment ?
Methods and Approach
The aspects presented in this report are concerning the three products. They include pet leashes, collars, and harnesses, all of which are produced using a management accounting approach of job order costing. The selection of this approach is based on the alignment with the company’s vision and mission. Notably, the use of job order costing allows the company to customize the products based on customer requirements to ensure that every customer is satisfied with the purchased item.
The company’s accounting department is guided by the American Institute of Certified Public Accounting Code of Professional Conduct. Notably, this ensures that the objectives of the company are diligently followed. The ethical practices that the accounting department considers in its operations include using integrity in all aspects of company operations, caring for the public interest, the financial record-keeping responsibilities better necessary to evaluate the company’s financial health, evaluating the scope and nature of services and products offered, offer care, and offer objectivity and independence in all the accounting procedures undertaken.
Financial Strategy
Costing System
The cost of manufacturing the company products can be assessed using various approaches and how to derive profitability from the manufactured products. The two main costing systems considered by the company include the job order costing and process costing system. Notably, the company uses both systems depending on the customer’s requirements. For the part of the production for the general market, the process costing system is applied because it is suitable for producing many similar collars, leashes, and harnesses. The costs for each item are accumulated based on a process that they go through until they become final products ready for sale. A profit margin is added to the total production costs to enhance profitability. The profit margin is reflected in the price of every manufactured item. Regarding the job order costing system, customers with specific requirements for the nature of the products they want will be offered an opportunity to get the products as they want them. For both of them costing systems, the variable costs will be used in determining the contribution margin of the products. Upon determining the contribution margin, fixed costs will be brought in to determine the breakeven point in units and dollars. The breakeven point will make it possible for the company to monitor the profitability level desired and work towards attaining it.
Selling Prices
The following are the prices for each product produced by Pets Product Company.
| Collars | $20 |
| Leashes | $22 |
| Harnesses | $25 |
The above selling prices are selected based on market research, data analysis, and costing system. Thus, the company will sell collars at $20 per collar with an expectation of selling 30 collars per day, leashes at $22 per leash with an expectation of selling 28 leashes per day, and harnesses at $25 per harness with an expectation of selling 25 harnesses per day. Notably, upon these results, the cost volume profit analysis is performed, and different aspects such as the contribution margin and breakeven analysis are realized.
Contribution Margin
| Milestone Two – Contribution Margin Analysis | |||||
| COLLARS | LEASHES | HARNESSES | |||
| Sales Price per Unit | $ 20.00 | $ 22.00 | $ 25.00 | ||
| Variable Cost per Unit | 9.10 | 12.10 | 14.60 | ||
| Contribution Margin | $ 10.90 | $ 9.90 | $ 10.40 | ||
The variable cost that is included in each of the three products formed a crucial basis in calculating the contribution margin for each of the three products. According to Liao et al. (2018), variable costs change with the input or the nature of the activity that is conducted. The variable costs that are involved in the manufacture of collars include price tags, buckles, ribbons, and nylon webbing. The data presented above determined that the variable cost per collar is $9.10, and by subtracting it from the selling price per dollar of $20, the contribution margin for each dollar is $10.90. The manufacture of leashes will entail a variable cost of $12.1 per unit of leash produced. The variable manufacturing costs for the leashes include price tags, buckles, ribbons, and nylon webbing. Compared to collars, leashes have a relatively higher value of variable costs due to a higher consumption rate for leashes. One leash will sell at $22; thus, when the variable cost per leash is subtracted, the contribution margin per leash will be $9.90. On the part of harnesses, variable costs will be incurred based on the price tags, buckles, nylon ribbons, and nylon webbings. The variable cost for each harness is $14.6; subtracting from the selling price of $25, a contribution margin of $10.4 per leash is made.
Target Profits
| Milestone Two – Break-Even Analysis | |||||
| COLLARS | LEASHES | HARNESSES | |||
| Sales Price | $ 20.00 | $ 22.00 | $ 25.00 | ||
| Fixed Costs | $ 4,028 | $ 4,028 | $ 4,201 | ||
| Contribution Margin | $ 10.90 | $ 9.90 | $ 10.40 | ||
| Break-Even Units (round up) | 370 | 407 | 404 | ||
| Target Profit | $ 300.00 | $ 400.00 | $ 500.00 | ||
| Break-Even Units (round up) | 398.00 | 448.00 | 453.00 | ||
| Target Profit | $ 500.00 | $ 600.00 | $ 650.00 | ||
| Break-Even Units (round up) | 416.00 | 468.00 | 467.00 | ||
Both the variable and fixed expenses are covered when attempting to determine the amount of income to be realized from the sale of each product. The breakeven analysis helps in conducting this evaluation. In the evaluation, the breakeven analysis of selling collars is conducted. The contribution margin of collars established in the contribution margin analysis is used in comparison with the fixed costs to determine the breakeven units. The fixed costs of producing collars were $4,028, and when they are divided by $10.9, it is established that the company will have to sell 370 units of collars to break even. Notably, at the breakeven point, the variable and fixed costs are fully covered (Tanco et al., 2019). For the case of leashes, the same fixed costs as in the case of collars are incurred. When divided by a $9.9 contribution margin for each unit of a leash, it is established that the company has to sell 407 leashes to break even. For the part of harnesses, the fixed costs of $4,028 are divided by its contribution margin of $10.4 to establish that 404 units of harnesses are to be sold for a breakeven point to be realized.
It is worth noting that the breakeven point highlights a point where the company will recover its variable and fixed costs. However, it is not the targeted level because the core intention of the company is to make a profit. Thus, target levels upon which maximum profits will be realized from the sale of the three products are established. Different target profits were assessed in the breakeven analysis, such as those of $300, $650, $600, and $500. The level of units required to attain these profits at the breakeven point is calculated as indicated in the table above. For instance, to attain a target profit of $500 for collars, the company should sell 416 breakeven units, while to attain a target profit of $650 for harnesses, the company will have to sell 467 breakeven units of harnesses.
Financial Statements
Statement of Cost of Goods Sold
| Milestone Three – Statement of Cost of Goods Sold | ||
| Beginning Work in Process Inventory | $ – | |
| Direct Materials: | ||
| Materials: Beginning | 0 | |
| Add: Purchases for the month of January | $ 20,000 | |
| Materials available for use | 20,000 | |
| Deduct: Ending materials | 4,000 | |
| Materials Used | 16,000 | |
| Direct Labor | 8,493 | |
| Overhead | 3,765 | |
| Total Costs | $ 28,258 | |
| Deduct: Ending Work in Process Inventory | 0 | |
| Cost of Goods Sold | $ 28,258 | |
The cost of goods sold statement highlights the expenses that were incurred in producing the sold products for collars, leashes, and harnesses. As indicated in the statement, a total cost of goods sold of $28,258 was incurred in producing the goods sold in the first month of operation. The composition of this cost entails production supplies of $20,000, direct labor of $8,493, and overheads of $3,765. However, production supplies worth $4,000 were unused at the end of the month and will be carried into the next month of operation. As compared to the budgeted benchmarks for the cost of goods sold, the company budgeted company did not perform well. Notably, this is so because the budgeted benchmarks for the direct materials used in production and the actual usage significantly differ. Further, the same is replicated with the direct labor cost because the actual direct labor hours used were more than the budgeted direct labor hours. However, the difference between the budgeted and actual performance is not huge. The difference is due to the increased cost of direct materials and the cost per direct labor hour in the market.
Income Statement
| Milestone Three – Income Statement | ||
| Revenue: | ||
| Collars | $ 12,880 | |
| Leashes | 10,800 | |
| Harnesses | 14,000 | |
| Total Revenue: | $ 37,680 | |
| Cost of goods sold | 28,258 | |
| Gross profit | $ 9,422 | |
| Expenses: | ||
| General and administrative salaries | $ 1,950 | |
| Office supplies | 200 | |
| Other business equipment | 150 | |
| Total Expenses | $ 2,300.00 | |
| Net Income/Loss | $ 7,122.00 |
Despite the changes in the cost of goods sold for each of the three products sold by the company, the company made a net profit of $7,122. Notably, this was a good financial performance for a company that had operated for only one month. Compared to the budgeted benchmarks, the company performed well in attaining a profit above the target profit for the three products. Despite the costs of goods sold, the company sold a substantial amount of products leading to the attained profits.
Variances
| Data for Variance Analysis: | ||||
| Budgeted (Standard) Hours/Qty |
Budgeted (Standard) Rate |
Actual Hours/Qty |
Actual Rate |
|
| Labor | 160 | $ 14.67 | 180 | $ 16.50 |
| Materials | 1,680 | $ 3.30 | 1,740 | $ 10.00 |
| Variance | Favorable/ Unfavorable |
|||
| Direct Labor Time Variance | ||||
| (Actual Hours – Standard Hours) x Standard Rate | $ 293.40 | Unfavorable | ||
| Direct Labor Rate Variance | ||||
| (Actual Rate – Standard Rate) x Actual Hours | $ 329.40 | Favorable | ||
| Direct Materials Quantity/Efficiency Variance | ||||
| (Actual Quantity – Standard Quantity) x Standard Price | $ 198.00 | Favorable | ||
| Direct Materials Price Variance | ||||
| (Actual Price – Standard Price) x Actual Quantity | $ 11,658.00 | Favorable | ||
The budgeted labor hours for the production of collars were 160 at a rate of $14.65. However, the actual labor hours that were used were 180 at a rate of $16.50. Notably, this indicates a significant difference between the planned labor hours and labor rate are indicated here with a 20 hours increase in labor hours and a $1.83 increase in labor rate. Various factors could have contributed to these changes. They include market conditions, government regulation, the minimum labor rates, and the complexity in the production of the collars (Dai et al., 2021). Regarding materials, the budgeted quantity of materials was 1,680 at a rate of $3.3. However, the actual performance indicates that the direct materials quantity used in the production was 1,740 at a rate of $10. Notably, this shows an increase in the number of materials of 60 and an increase in the quantity rate of $6.7. The changes could have occurred due to increased work time used by workers in production, and the increase in the quantity rate could be due to an increased purchase price of materials due to inflation and other adverse market conditions.
Significance of Variances
The variance analysis compares the budgeted performance of a company against the actual performance. Various variances are utilized to conduct the variance analysis to assess the disparity between the budgeted and actual performance of a company in relation to direct materials and labor. When the actual performance is better than the budgeted performance, it indicates that there was a favorable variance, while when their actual performance is poorer than the budgeted performance, an unfavorable variance is established (Kartechina et al., 2020). The four variances that are calculated for the company, as indicated in the table above, include the direct labor time variance, direct labor rate variance, direct material quantity variance, and direct material price variance. Of the four variances, only the direct labor time variance was unfavorable, indicating a good performance for the company across the other three variances. The unfavorable direct labor time variance was due to more hours spent in the production of the products as compared to the planned hours.
The budget and planning for next month will be slightly affected by the abovementioned variance analysis. Adjustments will be made to the budgeted prices of material and labor rates to reflect the actual market conditions. Notably, this is so because the budgeted labor and materials rates were significantly low compared to the actual results. By doing so, it is likely to undo the unfavorable variance recorded in the labor time variance. Additionally, the company will consider establishing ways to maintain the favorable variances recorded with respect to direct labor rate variance, material quantity variance, and material price variance.
Conclusion
We would like to thank all our investors for trusting in Pets Production Company and taking the time to read this report. We look forward to a continued partnership between the company and your support in helping the company rise in the ranks and reach the global arena. The results realized in the first month of operation, as shown in this report, are positive and promising, and going forward to the next quarter, even better results are expected.
References
Dai, M., Jin, H., Kou, S., & Xu, Y. (2021). A dynamic mean-variance analysis for log returns. Management Science, 67(2), 1093-1108
Kartechina, N. V., Bobrovich, L. V., Nikonorova, L. I., Pchelinceva, N. V., & Abaluev, R. N. (2020, September). Practical application of variance analysis of four-factor experience data as a technology of scientific research. In IOP Conference Series: Materials Science and Engineering (Vol. 919, No. 5, p. 052030). IOP Publishing.
Liao, S., Zhu, Q., Qian, Y., & Lin, G. (2018). Multi-granularity feature selection on cost-sensitive data with measurement errors and variable costs. Knowledge-Based Systems, 158, 25-42.
Tanco, M., Cat, L., & Garat, S. (2019). A breakeven analysis for battery electric trucks in Latin America. Journal of Cleaner Production, 228, 1354-1367.
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Question 
Your business has been open for a month, and you have prepared an income statement and completed a variance analysis on the data.
Investor Report for Pet Products Company
Now you will meet with investors and a few other internal stakeholders to share your company’s progress over the past month and how it has performed with respect to your cost and budget projections. The investors would like to see the thought process behind your financial strategy and how your company has performed in its first month. They have therefore asked you to present a report that includes the costing and income data from your Project Workbook.