Management Accounting. Background of Business Coursework

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Introduction

In coming 2012 the Olympic Games is going to be held in London. The Olympic Games is an ancient game and the worlds most prosperous and popular sports events combined various sports in one event. Spectators from all over the world would come eagerly to enjoy the events and it would carry vast opportunity for different business and opens the door of making quick profit. Considering all these factors this report would discuss about a new business started to keep in mind these factors and to subject of the Olympic Games.

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The business is concentrating on the stationary and food items. People who likely to come to witness the events are expected to do some kind of shopping and also they will buy food for consuming while enjoy the events. The business is about to supply these food items along with he beverages and some stationary items. In London there are many food stores, restaurants and stationary shops. But in the time of Olympic Games the demand will be so high that there will increase the possibility that the good profit margin would be generated by doing this business. The food products may be Pizzas, Burger, Hot dogs, Pastries, sandwiches and many more. The beverages may be of soft drinks like Pepsi, Coca-cola, 7-up and others, beer, fruit juices and tea or coffee. Stationary items may be of sandals, umbrella or any other essential products.

The proposed name for the proposed store is “Café Olympia’. This name has chosen to keep in mind the ancient history of the Olympic games and the critical customer association with the name “Olympia” as the first ever Olympic games was held on ancient Greek city “Olympia’.

About Survey

To forecast about the demand of the potential customer, a market survey has done. The survey technique was used because it is the most effective way to collect proper customer response. This survey has done with a questionnaire using as a survey tool. The respondents were selected randomly and their attitude towards the questions has been collected in the data base. The survey has done with many respondents and 20 of them were selected. They are selected from the street while passing away in a random basis.

Survey technique gives some benefits in this case. Firstly, the respondent became aware of the arrival at new stores in the time of Olympic and will find the store “Café Olympia” while they will come to enjoy the events. Secondly, the survey will bring out the customer expectation along with what they think not perfect for the business. Thirdly, the survey will also help to find out the possible demographics of the potential customers. If there any demographic patterns like preferences of a particular food by an age range, the business can be designed according to that fact. Finally, the survey will help to assess the market, the purchasing power of potential customers and the habit of the customers regarding consume of the products “Café Olympia’ is going to offer.

Preparing Questionnaire

As the tool of survey, a well designed questionnaire has been used. The questionnaire contains some selective types of questions from which the respondent select the most appropriate answers. There are some open ended questions also. At the beginning of the questionnaire the demographic part was aligned. From this part the age specifications of the customers and the other demographics which will affects the consumption pattern. There are three separate parts for food products, beverages and stationary. Each part starts with the first question of interest is a common question aimed to find out the preference that the respondents are willing to witness in the Olympic events. Then further two questions are related to find out the pattern of amount and price spent in the events. The next two questions are related to the customer preferences about the buy for home and the service delivery.

Survey Results from Public Opinion

From the survey using the questionnaire as a survey tool, various types of experience, information and opinion are collected. The experiences were quite positive and the respondent’s attitude towards the questionnaire and the survey was friendly enough. Many respondents were communicated and only 20 from those questionnaires were selected. Here the results of the survey has displayed by table.

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The second question of section- A was about to the age of the respondents. The results are:

Age rangeNumber of the respondents
0-10 (Child)0
11-19 (Teenage)7
20-30 (Young)4
31- 40 (Younger)2
41-50 (Youngest)7
51-60 (Aged)0
60 years and above (Old)0
Total20

The next question is about to the gender of the respondents.

Male10
Female10

Then the first question of section B is about to know whether the respondent will come to enjoy the Olympic events or not. The survey considers only the questionnaire who says yes to this answer.

The next question asks “how many days would you prefer to come?’

Day rangeNumber of the respondents
a) 1-7
b) 8-14
c) 15 – 21
d) 22-28
e) 29-35
f) 36-42
1
2
9
6
0
2
Total20

The next question was ‘In which week of the six weeks of Olympic Games you will possibly going to enjoy the events?”

Price rangeNumber of the respondents
a) 1st week
b) 2nd week
c) 3rd week
d) 4th week
e) 5th week
f) 6th week
6
5
1
1
2
5
Total20

Then the question of interest section was started. The first part was for the food products. The first question was “Would you consider purchasing Slice of pizza/Sandwich/Hot dogs/Burger/Pastry/Pop Corn/Chicken fries whilst enjoying London Olympics 2012? The 20 respondents in the street survey answered the question for various types of foods and the result was:

Name of foodsNumber of the respondents
a) Slice of pizza
b) Sandwich
c) Hot dogs
d) Burger
e) Pastry
f) Pop Corn
g) Chicken fry
5
3
2
6
1
1
2
Total20

And with the addition to this question the supplementary question was asked that includes “How often/how many?” This question was asked to know what amounts of these foods are required. The respondents replied:

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Amount rangeNumber of the respondents
a) 1- 5
b) 6-10
c) 11-15
d) 16-20
e) More than 20
7
8
3
1
1
Total20

Then the question came which asked that “Where have you purchased prior to London Olympic?”

Price rangeNumber of the respondents
a) From street shops
b) From restaurants
c) From famous food parlours
11
6
3
Total20

As an additional question with this the respondent were asked “And what is the most expensive purchase of?”

Price rangeNumber of the respondents
a) £ 1- 5
b) £ 6-10
c) £ 11-15
d) £ 16-20
e) More than £ 20
6
8
3
2
1
Total20

The third question asked to the respondent was “Would you be likely to purchase for friends/ family during London Olympic?”

AnswersNumber of the respondents
a) Yes
b) No
18
2
Total20

The respondents who said yes are then asked “for children’s and adults and how many?”

AnswersNumber of the respondents
a) for children
b) for adult
16
2
Total18

The answer for the question how many:

Amount rangeNumber of the respondents
a) 1- 5
b) 6-10
c) 11-15
d) 16-20
e) More than 20
7
6
3
2
2
Total20

Then the question number four was asked which stated “Describe your favourite (taste, colour, size etc).According to this question the respondents were answered according to their preferences.

PreferencesNumber of the agreed respondents
a) Taste
b) Colour
c) Size
8
5
7
Total20

Then the additional questions asked for some comments. The respondents comment on their selection and from their comments the resultant table is:

In case of taste

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PreferencesNumber of the agreed respondents
a) Sour
b) Spicy
c) Sweet
4
2
1
Total8

In case of Colour

PreferencesNumber of the agreed respondent
a) Red
b) green
4
1
Total5

In case of size

PreferencesNumber of the agreed respondents
a) Big
b) Medium
c) Small
4
2
1
Total7

The fifth question was about the importance of item which stated “What items are important to you when purchasing ?”

PreferencesNumber of the agreed respondents
a) Convenience
b) Availability
c) Hours of opening
d) Fast service
4
4
3
9
Total20

Then the same questions were asked According to the sequence for the beverages.

The first question regarding beverages was “Would you consider purchasing whilst enjoying London Olympics 2012?

BeveragesNumber of the agreed respondents
a) Soft drinks
b) Coffee
c) Fruit juice
d) Beer
7
1
5
7
Total20

The supplementary question was asked that includes “How often/how many?”

Amount rangeNumber of the respondents
a) 1- 5
b) 6-10
c) 11-15
d) 16-20
e) More than 20
11
3
3
2
1
Total20

The second question was that “Where have you purchased prior to London Olympic?”

Price rangeNumber of the respondents
a) From street shops
b) From restaurants
c) From famous food parlours
16
2
2
Total20

Then the additional question with the respondent were asked “And what is the most Expensive purchase of ?”

Price rangeNumber of the respondents
a) £ 1- 5
b) £ 6-10
c) £ 11-15
d) £ 16-20
e) More than £ 20
10
8
1
1
0
Total20

The third question asked to the respondent was “Would you be likely to purchase for friends/ family during London Olympic?”

AnswersNumber of the respondents
a) Yes
b) No
17
3
Total20

The respondents who said yes are then asked “for children’s and adults and how many?”

AnswersNumber of the respondents
a) for children
b) for adult
16
1
Total17

The fourth question was “Describe your favourite (taste, colour, size etc)?” the respondents who selected soft drinks answered:

PreferencesNumber of the agreed respondents
a) Cola
b) Lemon lime
c) Others
3
2
1
Total7

The respondents who selected fruit juices answered:

PreferencesNumber of the agreed respondents
a) Orange
b) Mango
c) Others
2
2
1
Total5

The last question for beverage section was “What items are important to you when purchasing ?”

PreferencesNumber of the agreed respondents
a) Convenience
b) Availability
c) Hours of opening
d) Fast service
4
10
3
3
Total20

Then the questions were for stationary items.

“Would you consider purchasing whilst enjoying London Olympics 2012?

Stationary itemsNumber of the agreed respondents
a) Umbrella
b) Hats
c) Sandals
d) Other
3
5
9
3
Total20

After that “How often/how many?” was asked:

Amount rangeNumber of the respondents
a) 1- 5
b) 6-10
c) 11-15
d) 16-20
e) More than 20
16
1
1
1
1
Total20

Then the question asked that “Where have you purchased prior to London Olympic?”

Price rangeNumber of the respondents
a) From street shops
b) From hawkers
c) From famous stationary shops
14
3
3
Total20

Then the respondents were asked “And what is the most expensive purchase of ?”

Price rangeNumber of the respondents
a) £ 1- 5
b) £ 6-10
c) £ 11-15
d) £ 16-20
e) More than £ 20
5
1
12
1
1
Total20

Then the question asked to the respondent was “Would you be likely to purchase for friends/ family during London Olympic?”

AnswersNumber of the respondents
a) Yes
b) No
7
13
Total20

The respondents who said yes are then asked “for children’s and adults and how many?”

AnswersNumber of the respondents
a) for children
b) for adult
6
1
Total7

Finally the last question for stationary section was “What items are important to you when purchasing ?”

PreferencesNumber of the agreed respondents
a) Convenience
b) Availability
c) Hours of opening
d) Fast service
3
11
3
3
Total20

Analysis of Survey Results

From the above results the analysis of the information collected can be done. The analysis is based on observation and natural intuition to select some close and clear information about the customer preferences and to find out what the perception of the customers about the products the “Café Olympia’ offers. Based on the analysis, the survey gets some assumptions which are:

  • The young and the teenage people are most likely to watch the Olympic events.
  • Customer will attended in the events for a medium range of days. That is they are not attended in a day range of 8 to 28 days.
  • The demand of the products will be high in the first two weeks and the last week.
  • The most preferred food items were the Piazzas, Burgers and sandwiches.
  • Most preferred beverage item is soft drinks and beer.
  • Sandals, hats and umbrella are preferred by most customers.
  • Most customers prefer beverages and stationary items to be available while enjoying Olympic events.
  • Most customers are willing to pay 6 to 10 pounds for food items, 1 to 5 pounds for beverages and 11 to 15 pounds for stationeries.
  • Maximum customers are willing to pay these materials from street shops. Most of them prefer the availability of these products.
  • Most of the customers are not only buying these products for instant consumption but also for home. Most of them are willing to bring those things for the children.

These assumptions are helpful in such a way that these facts is indicating the possible customer segment, the possible product and offer range which are most preferable to the customers and also the possible range of expense the customers are ready to pay for the probable offerings.

Master Budget

Master budget is the total budget of a business including sales, purchase, labour, and other direct costs of business. For this business, master budget is going to be prepared with the help of following table done in this report.

Table: Master Budget in Six weeks of Cafe Olympia

Description/ Week123456
Total Sales£538000£336000£299700£167000£223000£358400
Total Purchase£290500£290500£290500£290500£290500£290500
Total Labour Costs£30000£30000£30000£30000£30000£30000
Total of Other Direct Costs£7500£7500£7500£7500£7500£7500
= Cash Flow (Total sales – purchase+ labour+ other direct costs)£243750£41750£5450£(127250)£(71250)£64150
Opening Cash Balance£600000£356250£314500£309050£380300£21225
Closing Cash Balance (Opening cash balance- Cash flow)£356250£314500£309050£436300£507550£443400
  • Note:
    • This is a business of purchase and sales, rather than manufacturing. So, overhead costs are not needed.
    • This business is start up with £600000 cash balance.
    • Annual costs of cash flow are determined by total sales deducted purchase, labour and other direct costs.

Sales Budget

Sales budget is the starting point of Master Budget, which is used to forecast the sales multiplying by unit. In this business of Olympic Event of 2012, it is assumed that, the following goods would be selling in London, which is:

  • Food Items:
    • Slice of pizza
    • Sandwich
    • Hot dogs
    • Burger
    • Pastry
    • Pop Corn
    • Chicken fry
  • Beverages:
    • Soft drinks
    • Cola
    • Lemon lime
    • Orange Flavoured
    • Coffee
    • Cappuccino
    • Black
    • Fruit juice
    • Orange
    • Mango
    • Lemon
    • Seasonal Fruit
    • Beer
  • Stationary items:
    • Umbrella
    • Hats
    • Sandals
    • Magazines

Table: Sales Budget of Six weeks of Cafe Olympia

Sales Description/ Week123456
Budgeted Sales in Units
Slice of pizza(Per Piece)10000100008000500040008000
Sandwich600060005500450027005500
Hot dogs400035003000250012003800
Burger1200070007500400055009000
Pastry200015001800240015002000
Pop Corn (Per Packet)200015001600270014001500
Chicken fry (Per Piece)400040003500300023003500
Soft drinks (Per Can)14000100008000500040008000
Coffee (Per Glass)200015001500130012001500
Fruit juice (Per Bottle)1000070007000500050007000
Beer (Per Can)1400060005000300050008000
Umbrella (Per piece)600030004700260045004900
Hats(Per piece)1000050005500100031002500
Sandals(Per pair)180001200015001100250015000
Magazines600050005000200035005000
Budgeted Sales Per £/ Units
Slice of pizza(Per Piece)£ 2£ 2£ 2£ 2£ 2£ 2
Sandwich333333
Hot dogs333333
Burger444444
Pastry333333
Pop Corn (Per Packet)111111
Chicken fry (Per Piece)555555
Soft drinks (Per Can)222222
Coffee (Per Glass)333333
Fruit juice (Per Bottle)222222
Beer (Per Can)555555
Umbrella (Per piece)151515151515
Hats(Per piece)888888
Sandals(Per pair)121212121212
Magazines555555
Total Sales (Sales Per Unit * Sales Per £)
Slice of pizza(Per Piece)£20000£20000£16000£10000£8000£16000
Sandwich18000180001650013500810016500
Hot dogs120001050090007500360011400
Burger360002800030000160002200036000
Pastry600045005400720045006000
Pop Corn (Per Packet)200015001800240015002000
Chicken fry (Per Piece)200002000017500150001150017500
Soft drinks (Per Can)28000200001600010000800016000
Coffee (Per Glass)600045004500390036004500
Fruit juice (Per Bottle)200001400014000100001000014000
Beer (Per Can)700003000025000150002500040000
Umbrella (Per piece)900004500070500390006750073500
Hats(Per piece)1200006000066000120003720030000
Sandals(Per par)9000060000750055001250075000
Total Sales£5380000£336000£299700£167000£223000£358400

Note: Assume that, the budget sales per unit would be happen as customers’ preferences of choosing products from different items. It is also assume that, the number of customers would be not more than 2000 per week.

Purchase Budget

This budget is prepared after sales budget, to lists the number of units that must be produced during each budget week to meet sales needs. In this budget, total inventory of all products are purchased in equal volume of units. This purchase budget is shown below:

Table: Purchase Budget in Six weeks of Cafe Olympia

Purchase Description/ Week123456
Budgeted Purchase in Units
Slice of pizza(Per Piece)100001000010000100001000010000
Sandwich600060006000600060006000
Hot dogs400040004000400040004000
Burger120001200012000120001200012000
Pastry200020002000200020002000
Pop Corn (Per Packet)200020002000200020002000
Chicken fry (Per Piece)400040004000400040004000
Soft drinks (Per Can)140001400014000140001400014000
Coffee (Per Glass)200020002000200020002000
Fruit juice (Per Bottle)100001000010000100001000010000
Beer (Per Can)140001400014000140001400014000
Umbrella (Per piece)600060006000600060006000
Hats(Per piece)100001000010000100001000010000
Sandals(Per pair)180001800018000180001800018000
Magazines600060006000600060006000
Budgeted Purchase Per £/ Units
Slice of pizza(Per Piece)£ 0.5£ 0.5£ 0.5£ 0.5£ 0.5£ 0.5
Sandwich111111
Hot dogs1.501.501.501.501.501.50
Burger222222
Pastry111111
Pop Corn (Per Packet)0.250.250.250.250.250.25
Chicken fry (Per Piece)222222
Soft drinks (Per Can)111111
Coffee (Per Glass)1.501.501.501.501.501.50
Fruit juice (Per Bottle)111111
Beer (Per Can)222222
Umbrella (Per piece)777777
Hats(Per piece)444444
Sandals(Per pair)555555
Magazines222222
Total Purchase (Purchase Per Unit * Purchase Per £)
Slice of pizza£5000£5000£5000£5000£5000£5000
Sandwich600060006000600060006000
Hot dogs600060006000600060006000
Burger240002400024000240002400024000
Pastry200020002000200020002000
Pop Corn500500500500500500
Chicken fry800080008000800080008000
Soft drinks140001400014000140001400014000
Coffee300030003000300030003000
Fruit juice100001000010000100001000010000
Beer280002800028000280002800028000
Umbrella420004200042000420004200042000
Hats4000012001200120012001200
Sandals900009000090000900009000090000
Magazines120001200012000120001200012000
Total Purchase£290500£290500£290500£290500£290500£290500

Note: Assume that, the budget purchase per unit would be happen with the optimum level of purchase according to customers’ preferences of choosing products from different items, is calculated It is also assume that, the number of customers would be not more than 2000 per week.

Wages Budget

Wages budget or labour budget has developed including all requirements of labour with sufficient labour hours have prepared to know their costs in these six weeks. If it is considered that, all labours would be working for 12 hours a day, for purchasing products from different sources, and sell it to customers in those events. So, per labour works in a day:

  • =Time of a day/ Labour hours working in a day
  • = 24/ 12
  • = 0.5 labour hour per production purchase and sales

Table: Wages Budget in Six weeks of Cafe Olympia

Purchase Description/ Week123456
Budgeted Purchase in Units
Slice of pizza(Per Piece)100001000010000100001000010000
Sandwich600060006000600060006000
Hot dogs400040004000400040004000
Burger120001200012000120001200012000
Pastry200020002000200020002000
Pop Corn (Per Packet)200020002000200020002000
Chicken fry (Per Piece)400040004000400040004000
Soft drinks (Per Can)140001400014000140001400014000
Coffee (Per Glass)200020002000200020002000
Fruit juice (Per Bottle)100001000010000100001000010000
Beer (Per Can)140001400014000140001400014000
Umbrella (Per piece)600060006000600060006000
Hats(Per piece)100001000010000100001000010000
Sandals(Per pair)180001800018000180001800018000
Magazines600060006000600060006000
Direct Labour Hour per Purchase and Distribution0.500.500.500.500.500.50
Total Direct Labour Hours (Budgeted Purchase * Direct Labour Hour)
Slice of pizza(Per Piece)500050005000500050005000
Sandwich300030003000300030003000
Hot dogs200020002000200020002000
Burger600060006000600060006000
Pastry100010001000100010001000
Pop Corn (Per Packet)100010001000100010001000
Chicken fry (Per Piece)200020002000200020002000
Soft drinks (Per Can)700070007000700070007000
Coffee (Per Glass)100010001000100010001000
Fruit juice (Per Bottle)500050005000500050005000
Beer (Per Can)700070007000700070007000
Umbrella (Per piece)300030003000300030003000
Hats(Per piece)500050005000500050005000
Sandals(Per pair)900090009000900090009000
Magazines300030003000300030003000
Total Labour Hours600006000060000600006000060000
Direct Labour Costs Per Hour0.500.500.500.500.500.50
Total Labour Costs£30000£30000£30000£30000£30000£30000

Other Direct Costs

Other direct costs are relating with the purchase or sales directly of the business.

Table: Other direct costs in Six weeks of Cafe Olympia

Description/ Week123456
Transportation Costs£1000£1000£1000£1000£1000£1000
Storing Costs500500500500500500
Equipment Costs:
Fridge250025002500250025002500
Coffee Maker100010001000100010001000
Pop Corn Maker100010001000100010001000
Oven150015001500150015001500
Total of Other Direct Costs£7500£7500£7500£7500£7500£7500

Overheads

As the business would be performed with purchase and sales of products in Olympic events, so it is not related to the manufacturing costs. In overheads, the manufacturing costs of unit production are specified other than direct materials and direct labours costs. So, it is not necessary to done for this business.

Recommendations

Based on the above survey and budget analysis, there are some recommendations:

  • There is a clear indication from he master budget is that, in the 1st two week of the operation the business will experience good profit. In 3rd is going to be in loss and in 6th week there can be average profit. But the business will experience loss in the 4th and 5th week. So, there must be some incentives to earn profit from 4th and 5th week also.
  • The sales unit should be maintained with purchase of units.
  • The experienced and well educated people must be hired for the works.
  • The store must be set up in a suitable place near to the all stadiums.
  • The environment must be customer friendly.
  • The direct costs can be reduced by using generators or other source of electricity.

Conclusion

As the Olympic Games are the most spectacular events in the world, it is termed as “The greatest show on the earth.” People of the whole world have great attraction to this event and many people follow all the events physically not considering where it is held. Thus people from many countries are expected to come to London in the time of Olympic Games and this is the main strength of the business. The above budgets are showing a hopeful situation for the proposed store “Café Olympia”. The budgets would be helping tool to anticipate the future demand and according to these the offerings of the store would be designed in a manner which may help to maximizing the profit.

References

Garrison, R. H., Noreen, E.W. & Brewer P.C., 2008, Managerial Accounting, 11th edition, McGraw-Hill: International Edition, ISBN 0-17-111550-1.

Colin, D., 2009, Management Accounting for Business Decision, 4th edition, ISBN 978-1-4080 1771-5.

Atrill, P., & McLaney, E. J., 2005, Management Accounting for Non-Specialists, 4th edition, Prentice hall.

Stutely, R., 1999, The Definitive Business Plan, Pearson Education Limited, Great Britain, ISBN: 0273639307.

Pandey, I. M. (2007), Financial Management, 9th edition, Vikas publishing house Ltd: New Delhi, ISBN: 81-259-1658-X, pp-328-377.

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