Financial Strategy of Viva Wooden Doors Holdings Ltd. (Coursework Sample)

Investor Report for Viva Wooden Doors Holdings Ltd
Students Name
Table of Contents TOC \o "1-3" \h \z \u Investor Report for Viva Wooden Doors Holdings Ltd PAGEREF _Toc68724444 \h 1Introduction PAGEREF _Toc68724445 \h 2Purpose PAGEREF _Toc68724446 \h 2Methods and Approach PAGEREF _Toc68724447 \h 2Financial Strategy PAGEREF _Toc68724448 \h 3Costing System PAGEREF _Toc68724449 \h 3Selling Prices PAGEREF _Toc68724450 \h 3Contribution Margin PAGEREF _Toc68724451 \h 4Target Profits PAGEREF _Toc68724452 \h 5Financial Statements PAGEREF _Toc68724453 \h 6Statement of Cost of Goods Sold PAGEREF _Toc68724454 \h 6Income Statement PAGEREF _Toc68724455 \h 7Variances PAGEREF _Toc68724456 \h 8Significance of Variances PAGEREF _Toc68724457 \h 9References PAGEREF _Toc68724458 \h 10
Introduction
Viva Wooden Doors Holdings Ltd is a newly established legal entity, and its main activity is to manufacture custom wooden doors and windows for commercial and residential construction. Our products are sold locally, both in retail and wholesale. The company's vision is to become a leader in manufacturing quality and low-cost wooden doors for the residents and the neighboring states. In five years, I envision Viva Wooden Doors Holdings Ltd will have expanded its operations to our neighboring states since the feasibility study had shown that the market for our product is constantly growing alongside other critical economic sectors.
Purpose
This report aims to provide an insight into the financial performance of Viva Wooden Doors Holdings Ltd for the initial one month has been in operation. This report will also provide a detailed analysis of the expected sales and manufacturing cost to illustrate Viva Wooden Doors Holdings ltd viability. Any variance will be thoroughly explained so that the readers of this report can understand what caused it, its significate on the performance and how the company intends to deal with it in the future. It’s not expected that the company would have broken even after one month. Thus, this report will seek to establish the correlation between the actual and the planned contribution.
Methods and Approach
Viva Wooden Doors Holdings Ltd practices a job-order costing approach when evaluating actual production cost to guide on setting the selling price. The job order costing method is a management cost accounting technique that identifies and assigns overhead cost and material cost used by each department to produce doors and window frames for a specific job order. This costing approach is congruent to Viva Wooden Doors Holdings Ltd since it aids in maintaining its manufacturing cost per unit low, thus low selling price (Weygandt et al., 2018).
The comprehensive income statement presented in this report was prepared through strict adherence to International Financial Reporting Standards (IFRS) by a fully qualified Certified Public Accountant who is fully registered and a member of (AICPA).
Financial Strategy
Costing System
People have different tastes and preferences according to the design of the building they intend to put up and the amount of money they are willing to pay for the windows and doors. Thus, it implies that each order has its distinct requirements and characteristics, requiring special attention to price (Weygandt et al., 2018). Amongst the available costing approaches, i.e., process costing and job-order costing system, Viva Wooden Doors Holdings Ltd Selected Job order costing system since it was the most appropriate in a business setup where job order specifications are different. The costs are collected and accumulated for each job, considering each order essential custom specification prescribed by our clients. Process costing is appropriate where the end product being manufactured is uniform. It advocates assigning a cost per unit with total disregard to any special attention given to the product during the manufacturing process to meet the desired customer specification.
Selling Prices
Viva Wooden Doors Holdings Ltd employs a mark-up pricing model to determine the selling price of its products. The mark-up percentage added to the cost of production ranges between 15% and 20% depending on factors like; the urgency of the order, the size of the order in terms of quantity required, the complexity of the design and customization required, the availability of the type of wooden material desired by the client.
Mark-up pricing is easy to calculate since little information is required. First, the fixed cost and the variable cost are determined then the expected return rate is added to obtain the selling price (Drury, 2018). This approach is also referred to as cost-volume-profit analysis. Viva Wooden Doors Holdings Ltd endeavors to provide quality wooden doors at the lowest price possible. Therefore, we employ the principle of economies of scale to offer attractive discounts to its clients who place large orders. At Viva Wooden Doors Holdings Ltd, we classify variable cost and fixed cost when determining production costs.
The Contribution Margin
According to Drury (2018), the difference between the selling price and the cost of producing one unit is known as the contribution margin per unit. Viva Wooden Doors Holdings Ltd's management had predicted that one door's average selling price would be $112, and the total variable cost for manufacturing a one-unit door would be $90. Thus, the contribution margin per unit would be given by;
Contribution Margin Per Unit=Selling price per unit-Variable Cost Per Unit
The contribution margin per unit can also be expressed as a percentage, as illustrated in the formula below.
Contribution Margin Ratio Per Unit= Selling Price Per UnitVariable Cost Per Unit×100%
Table 1
Cost-Volume-Profit (CVP) Analysis Table for the first month.
Contribution Margin Analysis

 

Total ($)

Per Unit ($)

Sales projection-1000 units

112,000.00

112.00

Deduct: Variable costs

(90,000.00)

(90.00)

Contribution Margin

22,000.00

22.00

Target Profits
The break-even point is where the total revenues are considered to be equal to the total cost. This report will present Viva Wooden Doors Holdings Ltd's break-even point in terms of units required to be produced to obtain the break-even. The anticipated fixed cost is $24,000.00. This cost consisted of office rent, administration salaries, and storage facility expenses.
Break-even point=Fixed cost contribution Margin Per Unit
Break-even point=$20,000.00$22.00
=909 Units
Table 2
The break-even analysis of Viva Wooden Doors Holdings Ltd
(CVP) Cost-Volume-Profit Table

 

($) Total

($) Per Unit

Sales Projection - 1000 units

112,000.00

112.00

Deduct: Variable costs

(90,000.00)

(90.00)

Contribution Margin

22,000.00

22.00

Deduct: Fixed costs

(20,000.00)

 

Net income

2,000

 




Contribution margin percentage


20%

Break-even point

 

909

The first month and first-quarter profit targets for Viva Wooden Doors Holdings Ltd are $2,000 and $8,000, respectively. These profit targets were intended to progressively increase as the company grows to cement its position in the industry. Based on the profits target indicated herein, the number of units that the company were required to produce to attain those targets could be calculated as follows;
Units required to meet target profits=fixed cost+Target profit Contribution Margin per Unit
First Month Profit Target
=20,000+2,00022
=1,000 Units
First Quarter Profit Target
=20,000+8,00022
=1,273 Units
Financial Statements
Cost of Goods Sold Statement
Being our first month in operation, Viva Wooden Doors Holdings Ltd wouldn't be expected to make meaningful sales because there are no inventories ready for sale. Centrally to that odd, Viva Wooden Doors Holdings Ltd had prepared inventories before commissioning full operationalization.
Viva Wooden Doors Holdings Ltd

Cost of Goods Sold Statement

For the period between 1st -31st March 2021




Direct Materials

Budget

Actual

% Variance

sales Units

1000

885

-11.50%

Cost of Goods

$

$

 

Direct Materials



 

Opening Stock-Raw Materials

10,000.00

10,000.00