Term Paper on Use of Management Accounting

Tools & Techniques in Tiffany Corporation

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Term Paper on
Use of Management Accounting Tools & Techniques in
Tiffany Corporation
Submitted To
Dr.Yousuf Kamal
Associate Professor
Course No: 4202 (Introduction to Cost & Management Accounting)
Department of AIS
Faculty of Business Studies
University of Dhaka

Submitted By
Group Name The Tiffanys
Evening MBA
Department of AIS
Faculty of Business Studies
University of Dhaka

DATE OF SUBMISSION
August 24, 2015
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Group Profile

Group Name The Tiffanys

NAME

ID

NAUSHEEN AHMED

114-27-036

RUMANA AKTER

114-27-021

MD. ABU BAKER

112-22-069

MAHMUDA PARVIN

113-24-079

NAZMUN NAHAR

113-24-057

MOHAMMAD SAKHAWAT HOSSAIN

113-24-048

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Letter of Transmittal
August 24, 2015

Dr.Yousuf Kamal
Associate Professor
Department of AIS
Faculty of Business Studies
University of Dhaka
Subject: Submission of Term Paper on Use of Management Accounting Tools & Techniques in
Tiffany Corporation

Dear Sir
It is our greatest pleasure that, we have got the opportunity to submit the term paper on the topic cited
above as part of our course curriculum. In preparing the term paper, your kind cooperation helped us
doing the task accurately. This project helped us tremendously to understand the implication of
theoretical knowledge in the practical field.
We have undertaken our sincere effort for successful completion of the term paper. However, this
paper may have shortcomings which we hope will be considered cordially. With due respect and
humble submission, we are submitting the report to you for evaluation.

Sincerely Yours

Group Name - The Tiffanys

Evening MBA
Department of AIS
Faculty of Business Studies
University of Dhaka

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Acknowledgement

We would like to pay our gratitude to all of the related books, authors and related Web Sites that
helped us a lot for the completion of this term paper. At first we would like to acknowledge the
Almighty, who helped us every time and was with us and gave us moral support and strength every
moment.
We are especially grateful to our honorable course teacher Dr. Yousuf Kamal, Associate Professor,
Department of AIS, for giving us valuable suggestions and support to prepare this term paper.
Without his advice and support, it would not be possible for us to prepare this report.

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Executive Summary

The accounting literature identifies quite a number of specialized fields of accounting. Among them,
financial accounting is the original field of accounting. Its main purpose is to record transaction details
in monetary terms and prepare financial statements and reports in accordance with GAAP. The other
part of accounting, Management accounting provides necessary information to assist management in
decisions making and management control. Small business owners are faced with countless decisions
every business day. Managerial accounting information provides data-driven input to these decisions,
which can improve decision-making over the long term. Small business managers can leverage this
powerful tool to help make their business more successful by understanding how management
accounting benefits common business decision contexts.

Significant advances in automating routine transaction-related accounting tasks, combined with a strong
corporate emphasis on value creation, have signaled new directions for managerial accounting. This
trend had been building since the 1980s and accelerated in the mid-1990s. The thrust of the changes
have been to make management accountants strategic partners and analysts in management decision
making, rather than simply suppliers of data. Many companies now expect their managerial accounting
staff to assist in developing strategies to enhance shareholder wealth and to participate on crossfunctional teams with managers from operating departments throughout the organization, among other
things. If the old analogy was supplying endless data for management to sift through, the new analogy
has been providing value-added information that is directly to the point and suggests options that
management might not otherwise have considered. Indeed, at some companies the work of management
accountants has increasingly been labeled "finance" rather than "accounting" to suggest a broader set of
skills
and
expectations.

In this paper, we have applied basic management accountings tools and techniques for determining
unit product cost, total overhead cost, total cost, and potential selling price for our new product.
Moreover, management accounting tools helps us to know the point of sales where our target profit is
zero which is well recognized as break even analysis. Also, management accounting helps conduct
sensitivity analysis for the emerging situations. So, all these things help us in making judgments and
measuring performance. So, Management accounting is fundamental in strategic planning. When a
business is looking to make a strategic decision, for example, whether to develop a new product line,
acquire another business or expand into other countries, the management accounting can assist to take
appropriate
decisions.

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Table of Contents

Contents
Letter of Transmittal
Acknowledgement
Executive Summary
Introduction & Methodology
Overview of The Company
Description of the Product & Segmentation Strategy
Theoretical Overview of Management Accounting Tools & Techniques
Use of Management Accounting Tools & Techniques in Tiffany Corporation
Recommendations
Conclusion
References

Page No.
3
4
5
7
8
9-14
15-16
17-20
21
22
23

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Introduction & Methodology

In this chapter, we tried to describe the origin of the report, objective of the report, the methodology,
scope and limitations of the report.

Origin of the Report

The Evening MBA program under the department of Accounting & Information System offers a course
named Introduction to Cost & Management Accounting (Course No. 4202) which requires every
group to submit a report on a specific topic determined by the course instructor. The report under the
headline Use of Management Accounting Tools & Techniques in Tiffany Corporation has been
prepared towards this purpose.

Objectives of the Study

There are several objectives to conduct the study, which are:
1. To study about the latest management accounting tools and techniques
2. To determine the appropriate price by analyzing the cost drivers and other financial aspects
3. Using of proper management accounting technique to determine the break even sales point
4. To develop deep understanding about how a costing system works in an organization

Methodology
After being instructed by our honorable course teacher of Dr. Yousuf Kamal, we decided to make a
report on the Use of Management Accounting Tools & Techniques in Tiffany Corporation. At first,
we all the group members selected a new product for our business model and then developed the
costing system for that product. Our plan for making this report was firstly to collect data about
segmentation and analyze them attentively for finding out the necessary information related to our
report and finally to arrange all of those data systematically. For arranging all the data, we have
followed some procedures and steps such as at first we have given an idea of our company. Then we
discussed about the product. Then we decided the possible market segmentation of our product
SOLAR MOBILE and then developed the appropriate cost and management techniques for our
company.

Limitations of the Study

The information regarding the competitors is difficult to get.
Delays in getting the necessary materials department to collect information from different sources

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Overview of the company

The Tiffany Corporation is a mobile set manufacturing company.
Description of Business
This business will produce quality cell phone sets and serve them to consumers.

Financing
Initial financing requested is a BDT loan to be off over 5 years. This debt will cover factory equipment,
supplies, leased vans, office space, office equipment, advertising and selling costs.
This report is confidential and is the property of the entrepreneur. It is intended only for use by the
persons to whom it is transmitted, and any reproduction or divulgence of any of its contents without the
prior written consent of the company is prohibited.

Board of Directors

Name
Nausheen Ahmed

Designation
CEO

Function
Managing & Controlling the overall activities of the
organization

Rumana Akter

Director

Looks after the activities of Marketing Division

Md. Abu Baker

Director

Looks after the activities of Finance Division

Director

Looks after the activities of Employee Relation & People

Engagement Division

Nazmun Nahar

Director

Looks after the Procurement Division

Mohammad Sakhawat
Hossain

Director

Looks after the Production Division

Mahmuda Parvin

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Description of the Product

Our Mission
Our mission is to provide value at an economic cost, progress in diversity, and continue to
contribute to the growth of industrialization in Bangladesh by being the market challenger
Description of the products
We are going to introduce 3 different models each of which will provide different levels of
utilities to the consumers. Basic qualities of the products are:
1. Solar energy receiving system.
2. High definition signal receiver.
3. Solar charger.
4. Water resistant structure.
Model based facilities are given below:
Serial no.

1.

2.

Model code

TR-66

TR-77

Utilities
1. Solar
energy
receiving system
2. High
definition
signal receiver
3. Solar charger
4. Water
resistant
structure
1. Solar
energy
receiving system
2. High
definition
signal receiver
3. Solar charger
4. Water
resistant
structure
5. Internet
browsing
facilities
6. High quality solar
module that can
charge the battery
within 20 minutes

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3.

TR-88

1. Solar
energy
receiving system
2. High
definition
signal receiver
3. Solar charger
4. Water
resistant
structure
5. Internet
browsing
facilities
6. Solar module that
can
charge
the
battery within 7
minutes
7. Steel body
8. MP3 & MP4 player

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Segmentation Strategy
Marketing Research
Information for developing segmentation strategy may necessitate conducting some marketing
research. There may involve:
-

-Buyer of the product

-charging price
-proper distribution channel
-effective promotion strategy

Since these costs are high enough. We gathered information from primary and secondary
sources. What we found, are shown here.

Steps in preparing the segmentation strategy

1) Defining the Business situation
The market of cell phone sets is so vast. And we see that consumers choice is changing. As
our business is a new venture, which is just waiting to receive approval from all the related
parties, in fact, now, our business plan is simply a written document. Because, yet, we didnt
go to production, even if set up the plan. Our plan is, after getting the approval of all the related
parties like: financiers, suppliers, etc, we will launch our venture.
Scope of the market

The demand for changes in the market is ever rising. Therefore, certainly, if we concentrate our
business heavily into something that will provide newer utilities at a less price, then we hope
that we will be able to capture a significant portion of total market share.
2) Defining the target market

At first fixing Target Market very much important for our introduction. Defined target
market usually represents one or more segments of the entire market.
The target customer of our product TR-77 is the young adults, who are adventurous
in nature & like to experience attractive things. Their age range is 22-26.
The target customer of our TR-66 model is those people who are not interested about
the design of the cell phone but eager to get comprehensive advantage from the use of
his or her cell phone set.

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 Our target customer of TR-88 is those people, whose mind setup is determined, and
attitude toward life is clear-cut and have enough money in hand.
When we set up our target market for each and every product, we just took it into our
consideration that every single persons life style, psychological need, social status, and
instant demand, future expectation of life is different.
3) Considering Strengths and Weaknesses
-For consideration of strengths and weaknesses in the target market we regarded asStrengths

Financial support from financiers.

Proper distributional system.
Proper training program for skilled sales team.
One stop solution operation plan.
Competitive pricing strategy.
Strong Corporate Image.

Weakness

Shortage of concentrate
Quality issue
Demand gap
Outdoor campaign is not sufficient enough
Lack of cash may be seen in hard time.

Opportunities

New package in market

New offer
Newly introduced Machine
More export
Strong distributional channel
Given sample to the customer

Threats

Threat of established cell phone company

Different package offer from different company.

5) Defining Marketing Strategy and Action Program

Five important elements of marketing mix are: Product, Price, Distribution, Promotion and Packaging.
Defining marketing strategy means taking decisions which reflect on these marketing mix variables.
There are different marketing strategies which will be discussed later.

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Segmentation Process
Since our products acceptance to users depends on its utilities & price, we choose to the potential
market geographically & then demographically. It means:

Geographic
SEGMENTATION
Demographic

Geographic segmentation
We have divided the whole Bangladesh into 8 major areas according to the environment & sunlight
variation. According to the areas nature, we are offering our phone models.

Sales and distribution

Mymensingh
Bogra
Sylhet

Dhaka 1-2-3

Khulna

Chittagong

Barisal

Noakhali

For example:
Northern part of Bangladesh gets sunlight in almost all the year & electricity is not at all available in
everyplace of that region. So, we will provide TR-66 for that region.

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Area with
almost
continuous
electric supply

Area with
moderate
electric supply

Area without
electric supply

High income

TR-88

TR-88

TR-77

Moderate
income

TR-77

TR-66

TR-66

Low income

TR-66

TR-66

TR-66

Geographic/
Demographic

Similarly we will segment our market to improve our market share. Products will reach the consumers
from our hands through the following way:

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Theoretical Overview of Management Accounting Tools &

Techniques
For fulfilling the purpose of management accounting there are already many techniques and tools
prevail in the market which are as follows:
Cost Volume Profit (CVP) Analysis
CVP analysis examines the behavior of total revenue, total costs and profit as changes occur in the
output level, selling price and variable costs per unit or fixed costs. Cost volume profit analysis is a
powerful tool that helps manager understands the relationships among cost, volume, and profit. CVP
analysis focuses on how profits are affected by the following five factors selling price, sales volume,
unit variable costs, total fixed cost and mix of product sold.
Theory of Constraints (TOC)
In 1985, Goldratt published The Goal, a novel about manufacturing. Goldratt devised a set of nine rules
that summarize his principles of optimized production. In order to have the philosophy of The Goal
cover more than just manufacturing operations, Goldratts emphasis on bottlenecks led him to codify
his approach to problem solving into a structured process he called the Theory of Constraints.
Six Sigma
Six Sigma can be defined as a specific methodology to develop and implement quality improvements
in an organizations critical processes by rigorously measuring and identifying variations from customer
specifications in those processes and adjusting them or creating entirely new processes to keep
variations at an acceptable level. Specifically, Six Sigma seeks to focus an organization on defining
customer/user requirements, aligning processes to meet those requirements, using metrics to minimize
variations in processes and rapidly and permanently improving processes.
Job Order Costing (JOC)
Job Order Costing, generally, it is the allocation of all time, material and expenses to an individual
project or job. Specifically, JOC is normally software based and provides for budgeting, forecasting,
collecting and reporting on the expenditure and revenue associated with specific projects or jobs. A joborder costing systems is used in situations where many different products are produced each period.
Job-order costing is also used extensively in service industries. Hospital, law firms, accounting firms,
movie studios, advertising agencies and repair shops, for example, all use a variation of job-order
costing to accumulate cost for accounting and billing purposes.
Process Costing
Process costing is a method of cost and management accounting applied to production carried out by a
series of chemical or operational stages or processes. Its characteristics are that costs are accumulated
for the whole production process and that average unit costs of production are computed at each stage.
A process costing system is used in situations where the company produces may units of a single
product for long periods.
Absorption Costing
Absorption costing is the method under which all manufacturing costs, both variable and fixed, are
treated as product costs with non-manufacturing costs, e.g. selling and administrative expenses, being

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treated as period costs. Absorption costing treats all manufacturing cost as product coasts, regardless of
whether they are variable or fixed. The cost of a unit of product under the absorption costing method
consists of direct materials, direct labor, and both variable and fixed manufacturing overhead.
Variable Costing
Under variable costing, only those manufacturing cost that varies with output are treated as product
costs. This would usually include direct materials, direct materials and the variable proportion of
manufacturing overhead. Fixed manufacturing overhead is not treated as a product cost under this
method. Rather, fixed manufacturing overhead is treated as a period cost and like selling and
administrative expenses, it is expensed in its entirety each period.
Standard Costing
Standard costing is an accounting system designed to properly allocate costs of direct labor, indirect
labor, materials, overhead, and selling / general / administrative accounts on a unit basis for the purpose
of accurately costing products and the subsequent control of those costs in managing the production,
marketing, purchasing, and administrative functions of the business.
High Low Method
This is mainly a statistical tools also used in management accounting to find out the relation between
fixed cost and variable cost. That means this method used in management accounting to determine the
cost equation of the company. Under this method per unit variable cost is the difference of cost of
higher activity and cost of lower activity divided by the difference of higher and lower activity.
Least Squares Regression Methods
This method is also like the high low method, used to find out the relation between fixed cost and
variable cost. But, unlike the high low method, uses all of the data to separate a mixed cost into its
fixed and variable components by fitting a regression line that minimizes the sum of the squared errors.
Break Even Analysis
The break-even point for a product is the point where total revenue received equals the total costs
associated with the sale of the product (TR = TC). A breakeven point is typically calculated in order for
businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to
modify an existing product instead so it can be made lucrative. Break even analysis can also be used to
analyze the potential profitability of an expenditure in a sales-based business.
Operating Leverage
The operating leverage is a measure of how revenue growth translates into growth in operating income.
It is a measure of leverage, and of how risky (volatile) a company's operating income is. Normally it is
calculated as contribution margin or CM (sales revenue less variable cost) divided by net operating
income or NOI.

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Use of Management Accounting Tools & Techniques in

Tiffany Corporation
Main cost of producing Solar Mobile
Manufacturing Cost
Non-Manufacturing Cost
Manufacturing cost comprises of direct material, direct labor and manufacturing overhead which are as
follows for Tiffany Corporation:

Cost Type

Details

Manufacturing Cost
Cost of the main raw materials like solar panel,
solder iron, heat gun, heat shrink tubing, wire
stripper etc.
Salary and wages of assembly line workers

Direct Material
Direct Labor
Manufacturing Overhead

Salary of the factory manager, heat & light,

property taxes, depreciation, insurance of
manufacturing facilities

Non-Manufacturing Cost
Selling Cost
Administrative Cost

Cost of Advertising, sales commission,

depreciation of sales facilities etc.
Executive compensation, insurance, depreciation
of office equipment etc.

Cost Behavior
The main cost identified above can be separated into variable, fixed and mixed category

Cost Type
Variable Cost
Fixed Cost
Mixed Cost

Details
Direct material, direct labor, packing material
costs
Executive salaries, utilities, insurance,
depreciation, advertising.
Sales salaries and commissions, clerical

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Determination of Product Cost

Cost Driver: Batch wise labor hour of the three main department
Way of Cost Drivers' Data Capturing: Labor log books to total labor hours
The labor hour activities in Tiffany Corporation are as follows:

Code

061037
061038
061039

Product
Name

TR-66
TR-77
TR-88

The Labor Hour Activities

Wiring &
Batch
Batch
Size
Tubing
No
Dept.
Hour
3990
DB9017
4
1670
DB9018
4
877
DB9019
4

Assembling
Dept.
Hour
3
3
3

Finishing
Dept.
Hour
2
2
2

Production cost per unit under Job Order Costing System

During the production period, overhead absorbed for the batch of production at the rate of Tk. 25000,
30,000 and 20,000 per Labor hour for wiring & tubing department, assembling department and
finishing department respectively.

Determination of Total Overhead

Departments
(1)
Wiring & Tubing
Assembling
Finishing

OH rate
(2)
Tk.
25,000
30,000
20,000
Total

No. of
working
days
(3)
26
26
26

No. of working hours

per day
(4)
4
3
2

Total OH
(2x3x4)
(5)
Tk.
2,600,000
2,340,000
1,040,000
5,980,000

Determination of Unit Production Cost

Type of Cost
Raw material
Packing material
Factory overhead
Product cost per unit

TR-66 (Tk.)
1,629
376
1,498
Tk/
3,503

TR-77 (Tk.)
4,012
898
3,580
8,490

TR-88 (Tk.)
7,982
1,710
6,818
16,510

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Determination of Potential Selling Price

While determining the potential selling price, Tiffany Corporation sets 7% profit margin on total cost.
The details are shown in the following table:

Determination of Potential Selling Price

Type of Cost
Production Costs Per Pcs
Fixed Costs

TR-66 (Tk.)
3,503
1,224

Profit (7%)
Selling Price

330
Tk/
5,057

TR-77 (Tk.)
8,490
1,224
680
10,394

TR-88 (Tk.)
16,510
1,224
1,241
18,975

Break Even Analysis

Tiffany Corporation currently sells 8,000 pcs of TR-66, 6500 pcs of TR-77 and 5000 pcs of TR-88. We
also determined our break-even point so that we will be able to know the point where our target profit is
zero. Details are in the following table:

Determination of Break-Even Unit Sales

Type of Cost
Fixed Costs (a)
Target Profit (b)
Unit CM (c)
BE Unit Sales (a)/(c)

TR-66 (Tk.)
8,000,000
0
1,554
Tk/
5,148

TR-77 (Tk.)
8,000,000
0
1,904
4,202

TR-88 (Tk.)
8,000,000
0
2,465
3,245

Scenario Analysis
As our organization deals with electronic and electrical things, the increase or decrease in the price of
these accessories is a common phenomenon. However, as a new concern, we have to grab attention of
the customers for which we may need to increase our monthly advertising budget. So, both of the
situations may affect net operation income of the company to some extent. We can conduct a scenario
analysis for Tiffany Corporation in the following aspect:
Scenario

Impact

5% increase in the price of electronics and

electrical accessories
2% increase in the price of electronics and
electrical accessories & Increase of yearly
advertising budget by Tk. 1,000,000

How will Net Operating Income be affected?

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Scenario-1: 5% increase in the price of electronics and electrical accessories

Particulars
Sales

Present (Tk.)
202,892,000

Variable Expense
Contribution Margin
Fixed Expense
Net Operating Income

165,759,000
37,133,000
8,000,000
29,133,000

5% increase in cost (Tk.)

202,892,000
174,046,950
28,845,050
Tk/
8,000,000
20,845,050

If price of electronic and electrical items is increased by 5% then NOI is reduced by Tk. 8,287,950.

Scenario-2: 2% increase in the price of electronics and electrical accessories & Increase of yearly
advertising budget by Tk. 1,000,000
Particulars
Sales

Present (Tk.)
202,892,000

Variable Expense
Contribution Margin
Fixed Expense
Net Operating Income

165,759,000
37,133,000
8,000,000
29,133,000

Increase in Adv. cost (Tk.)

202,892,000
169,074,180
33,817,820
Tk/
9,000,000
24,817,820

If price of electronics and electrical accessories is increased by 2% and yearly advertising budget is
increased by tk. 1,000,000 then NOI is reduced by tk. 4,315,180

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Recommendations
The solar mobile is designed with a view to decrease the battery charging time, making it capable of
charging more than one battery at a time and getting the desired current from the PV panel. Our
software is able to eliminate costs. Though it will be a new product in the market, our cost effective and
user friendly feature of this phone will easily grab the attention of the customers. However, after
passing the introduction stage, we will focus on adding more features for our phone to target the
premium customers. Also, we will increase our profit margin. After reaching the saturation stage, we
will follow differentiation strategy to cope up with competition since new comers may enter into the
market and make it more competitive.

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Conclusion
Management accounting or managerial accounting is concerned with the provisions and use of
accounting information to managers within organizations, to provide them with the basis to make
informed business decisions that will allow them to be better equipped in their management and control
functions. As management accounting has no statutory bindings like financial accounting a manager
can select any techniques and tools he / she likes. Sometimes this selection depends on situation and
sometimes on organizations strategy. But choosing the right strategy for the organization is a key
factor. We have applied some of the management accounting tools and techniques for our new product
which enables us to fix the right price for the product and make appropriate decision for present and
future growth. Management Accounting is one of the most important area for any kind of organization.

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References
Books
Managerial Accounting by Garrison/Noreen/Brewer

Websites
1.
2.
3.
4.
5.

http://www.cgma.org/Resources/Tools/essential
http://www.slideshare.net/stroke/cost-management-accounting-techniques
http://accounting-simplified.com/management/introduction/functions.html
http://www.smccd.net/accounts/nurre/online/chtr3.htm
http://www.accountingtools.com/job-costing

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