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About Cadbury Limited

Question:

Discuss about the Managerial Accounting of Cadbury Limited.

This report paper has been prepared to evaluate the financial performance and the financial position of Cadbury limited. For preparing this report, quantitative analysis have been done on the manufacturing process and the cost of the company. On the basis of these calculations, pricing strategy, breakeven strategy, revenue model and breakeven point etc of the company has been prepared. For estimating and evaluating the financial statement and the position of the company, fixed cost of the production of the company, required cash to manage the production of the company, total current and total noncurrent assets of the company, items of income statement of the company such as salaries, revenues, ongoing cost, depreciation etc.

Cadbury limited is one of the largest chocolate manufacturing and delivering company is the worldwide. According to the current report about the confectionary companies, it has been found that this company falls on second number after “Mars”. The company is offering its confectionary items such as chocolates, cookies and biscuits in worldwide. The company is working on diversification strategies. The main motto of the company is to grab the entire international market and become the leader in the market. Currently, it is running its business in more than 50 countries. The main products of the company are dairy milk chocolates, roses selection box, crème egg, Oreo biscuits, various cookies etc. The company has been established in 1824. The production system of the company is quite competitive.

Board of directors and the director’s report of the company explain that the company has managed all its functions and the operations in efficient and effective manner. Currently, the position and production of the company has been studied to make better conclusion about the budgeting process and the performance of the company.

Managerial accounting is a procedure to measure, analyze, evaluate, interpret and communicate the accounting and financial information of an organization with the management of the company to record in a proper manner so that the goal and the objectives of the company could be fulfilled (Williams, Haka, Bettner and Carcello, 2005). Managerial accounting takes the concern of the related factors and the aspects to administer the financial performance and the position of the company. Managerial accounting is important for every manufacturing and non manufacturing company to manage and enhance the position of the company.

Managerial accounting’s main importance is that it helps the administration of the company to make better decision about the place and the performance of the company. It concentrates on the internal business and the function of the company. The managerial accounting makes it easy for the management of the company t evaluate the financial position of the company so that the decision about the funding and the cash position could be made by the company easily. More, it also assists the corporation to forecast the future and make better conclusion about the company’s performance (Madhura, 2011).

Quantitative Analysis of Manufacturing Process and Cost

The study has been performed on Cadbury limited and it has been evaluated that the managerial accounting made it easy for the corporation to evaluate the pricing strategy of the company. The breakeven point of the company has been analyzed on the basis of the production system of the company (Weygandt, Kimmel and Kieso, 2009). Following calculations have been made through evaluating the production system of the company:

`

 Y1 

 

    30,00,000

1L

Fixed costs

 Admin Costs

         15,000

0.0050

 Salaries

           5,000

0.0017

 Rent

         12,000

0.0040

 Fees

           6,000

0.0020

 Insurance

           5,000

0.0017

 Misc.

           5,500

0.0018

 depreciation

           4,000

0.0013

TOTAL

         52,500

0.0175

Variable Costs

Material cost

      1,10,000

11.0000

Labour cost

      1,00,000

10.0000

Commission

           750.0

0.075

Transport cost

         30,000

  3.0000

Misc cost

           6,750

  0.6750

Total

Costs

      3,00,000

 

Breakeven revenues

Revenues

      1,31,868

 

BREAKEVEN

Price

      3,00,000

 


The above calculations express that the company has to suffer AED 3,00,000 of the cost to product a lot of chocolates at a time. In that, the total fixed cost of the company is AED 52,500 whereas the total variable cost of the company is AED 2,47,500. It explains that the breakeven revenue of the company is AED 1,31,868. It explains that the company is generating good amount of profit. Further, the break even analysis is also a part of managerial accounting which makes it easy for the company to evaluate the performance and the position of the company (Higgins, 2012). It explains that if the company wants to produce 10000 units of chocolates that the BEP units of the company are 3297 units. It explains that the rest units are the mark up units of the company and it would offer the great profit of the company.

Sales

       
 

Sales (AED) /one unit

40

   
 

Sales Volume (no. of units) per period

10,000

   
 

Total Sales amount

 

4,00,000

 

Variable Cost

       
 

Material cost per unit

11.00

   
 

Labour cost per unit

10.00

   
 

Commission per unit

0.08

   
 

Transports cost per unit

3.00

   
 

Misc. Costs per unit

0.68

   
 

Total Variable cost per unit

24.08

   
 

Total Variable cost per period

 

2,40,750

 
 

Contribution Per unit

15.9

   
 

Gross Margin

1,59,250

   

Fixed Costs

       
 

Admin Costs

15,000

   
 

Salaries

5,000

   
 

Rent

12,000

   
 

Fees

6,000

   
 

Insurance

5,000

   
 

Depreciation

4,000

   
 

Misc.

5,500

   
 

Total Fixed Costs

 

52,500

 

TOTAL COSTS

 

2,93,250

 

Net Profit

 

1,06,750

1,06,750

 
       

3296.7

BE

   

3296.7

 

Further, the budgeting process is a process which explains about the future of the business. It takes the concern of current trends of the industry, demand and supply forecast, market position of the products of the company, past data and the growth of the revenue of the company, suppliers position of the company etc and explains the company about the future changes so that, it becomes easy for the organization to make the financial strategy for the business and maintain the business in an efficient manner (Deegan, 2013). Further, it explains that the budgeting process is a crucial element for every manufacturing business. Some of the importance of budgeting process is as follows:

Budgeting process makes it easy for an organization to forecast the prospect changes of the company. It is easier for the corporation to evaluate the future and make strategies for better business of the company on the basis of budgeting process. More, it assists the management of the business to make better conclusion about the production of the company, total purchase of the company, safe inventory of the company, total cash required for the company etc. (Hillier, Grinblatt and Titman, 2011). It also explains the company that how much assets and the resources are required to produce the units and meet the demands of the customers.

Importance of Managerial Accounting

The budgeting process study has been done on Cadbury limited and it has been evaluated that the budgeting process is helping the company to manage all the aspects and the company’s performance (Arnold, 2013). On the basis of budgeting process, it becomes very easy for the company to make better decision about the position and the performance of the company. Further, the calculations have been done on the budgeting system of the company and it has been evaluated that the production of the company would be better in the UAE market as the demand of chocolates in UAE market is quite high. More, the total purchase of the company would also be higher due to the different taste and the variety of chocolates. The inventory of the company would also be managed in a proper manner after evaluating the performance and procedure of manufacturing the process. And, the total cash required for the company would be AED 3,83,000 (Davies and Crawford, 2011).

The pricing strategy calculations of the company express that the company has to spend AED 3,00,000 of the cost to product a lot of chocolates at a time. In that, the total fixed cost of the company is AED 52,500 whereas the total variable cost of the company is AED 2,47,500. It explains that the breakeven revenue of the company is AED 1,31,868. Further, it explains that the variable cost per unit of the company is AED 0.68. The pricing strategy of the company explains that the strategy has been prepared and maintained by the company after evaluating and analysing every relevant factor (Brown, Beekes and Verhoeven, 2011). Following calculations express that the following would be the price of the products:

Time

Unit Price

Unit variable cost

Total Fixed Costs

                 

Month

40

24.8

52,500

                 

Sales Volume Analysis

                       

Units Sold per period

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

Sales Price Per unit

40

40

40

40

40

40

40

40

40

40

40

40

Total Sales

4,00,000

4,20,000

4,40,000

4,60,000

4,80,000

5,00,000

5,20,000

5,40,000

5,60,000

5,80,000

6,00,000

6,20,000

Fixed Costs per period

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

Variable Costs

247500

259875

272250

284625

297000

309375

321750

334125

346500

358875

371250

383625

Total Costs

3,00,000

3,12,375

3,24,750

3,37,125

3,49,500

3,61,875

3,74,250

3,86,625

3,99,000

4,11,375

4,23,750

4,36,125

Net Profit (Loss)

1,00,000

1,07,625

1,15,250

1,22,875

1,30,500

1,38,125

1,45,750

1,53,375

1,61,000

1,68,625

1,76,250

1,83,87

Further, the break even strategy of the company has been evaluated. This analysis is also a part of managerial accounting which makes it easy for the company to evaluate the performance and the position of the company. It explains that if the company wants to produce 10000 units of chocolates that the BEP units of the company are 3297 units. It explains that the rest units are the mark up units of the company and it would offer the great profit of the company (Brealey, Myers and Marcus, 2007). Following graph explains about the breakeven point of the company:

Further, the revenue of the business has been analyzed to recognize the financial performance and the position of the company. And the following calculations have been evaluated:

Time

Unit Price

Unit variable cost

Total Fixed Costs

                 

Month

40

24.8

52,500

                 

Sales Volume Analysis

                       

Units Sold per period

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

Sales Price Per unit

40

40

40

40

40

40

40

40

40

40

40

40

Total Sales

4,00,000

4,20,000

4,40,000

4,60,000

4,80,000

5,00,000

5,20,000

5,40,000

5,60,000

5,80,000

6,00,000

6,20,000

Fixed Costs per period

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

52,500

Variable Costs

247500

259875

272250

284625

297000

309375

321750

334125

346500

358875

371250

383625

Total Costs

3,00,000

3,12,375

3,24,750

3,37,125

3,49,500

3,61,875

3,74,250

3,86,625

3,99,000

4,11,375

4,23,750

4,36,125

Net Profit (Loss)

1,00,000

1,07,625

1,15,250

1,22,875

1,30,500

1,38,125

1,45,750

1,53,375

1,61,000

1,68,625

1,76,250

1,83,87

Breakeven Analysis

It explains that with the different production units of the company, the revenue of the company would be different and so that net profit of the company so the company has decided to produce 14000 units per month as it would offer high profit to the company and at the same time, on this level, it would be easier for the company to manage and evaluate the demand of the company (Baker and Nofsinger, 2010).

Through the above evaluation and forecast on the financial performance of the company, it has been evaluated that the future performance of the company would be better. The revenue of the company would be better and at the same time, the evaluation and the research explains that the demand of chocolates in UAE market is quite high. More, the total purchase of the company would also be higher due to the different taste and the variety of chocolates (Ackert and Deaves, 2009). The inventory of the company would also be managed in a proper manner after evaluating the performance and procedure of manufacturing the process. And, the total cash required for the company would be AED 3,83,000. This explains that the financial performance of the company is quite better.

Conclusion:

The above study explains that the financial performance and the position of Cadbury limited would be quite attractive in the UAE market. This report paper explains about the quantitative analysis, manufacturing process and the cost of the company. On the basis of these calculations, pricing strategy, breakeven strategy, revenue model and breakeven point etc of the company, it has been found that the company would perform better in the UAE market.

References:

Ackert, L. and Deaves, R. 2009. Behavioral Finance: Psychology, Decision-Making, and Markets. Cengage Learning.

Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.

Baker, H.K. and Nofsinger, J.R. 2010. Behavioral Finance: Investors, Corporations, and Markets. John Wiley & Sons.

Brealey, R., Myers, S.C. and Marcus, A.J., 2007. FundamentalsofCorporate Finance. Mc Graw Hill, New York.

Brown, P., Beekes, W. and Verhoeven, P., 2011. Corporate governance, accounting and finance: A review. Accounting & finance, 51(1), pp.96-172.

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy. McGraw Hill.

Madura, J., 2011. International financial management. Cengage Learning.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2009. Managerial accounting: tools for business decision making. John Wiley & Sons.

Williams, J.R., Haka, S.F., Bettner, M.S. and Carcello, J.V., 2005. Financial and managerial accounting. China Machine Press.

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