Managerial Accounting

SHAHTAJ TEXTILE

Submitted by:

Abdullah Majeed

Syeda Iza Haider

MBA II - A
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Executive Summary

This report presents the financial analysis of “Shahtaj Textile Ltd.” for the year ending 2018. The
approach taken is benchmarking against past performance to identify the areas of improvement
and concerns, which are hampering the performance of the company. The scope involves basic
introduction of Shahtaj Textile Ltd. and its areas of business. As the scope of the report primarily
revolves around management costing so some basic advantages of cost management and strategy
are discussed to highlight areas of differentiation.

Scheduling of Budgeting is done by incorporating numerous variables like inflation and increase
in production to reach at approximated figures for 2019.

Some recommendations are also made to highlight areas of improvement and focus in brief this
report is an effort to dissect systems and strategy of Shahtaj Textile Ltd.
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Budgeting

Sales Budgets
Shahtaj Textile Ltd. make sales budget on the basis of the historical data. Hence, we took the
assumption that the company considers the past year sales and then make budget by adding 20%
of the last year sales to the last year sales and assume it as coming year sales. They also are
increasing the selling price by 5% compared to that of last year to maintain their expected revenue
as the cost is increasing due to dollar fluctuations.

Schedule 1: Revenue Budget

For the year ending 30 June 2019

Shirts

Units 105,200

Selling Price 1250

Sales Revenue 131,500,000

Assumption

1) They only make Shirts

2) The price for the Shirts is Rs.1250 per meter

3) The units are assumed according to the Sales Figure according to the assumed growth rate of
5%
4) The growth rate of units is assumed to be 3%
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Workings

Calculation of Units in 2018

Selling Price of Shirts 1,250

Sales Revenues of
2017 131,500,000
105,200

2019 unit in Sales

Growth Rate 3%
Units 102044
Units 2018 105,200

Production Budget
As Shahtaj Textile Ltd. uses Job Order Costing and only make to order so the company produces
only the number of products that are being ordered.

Schedule 2: Production Budget

Shirts
Company Orders 105,200
Total Production 105,200

Schedule 2: Production Budget (in Units)

For the year ending June 30, 2019

Budgeted Unit Sales 105,200

Add target ending finished goods inventory 3340

Total required units 108,540

Deduct Beginning finished goods inventory 2220

Units of finished goods to be produced 106,320

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Assumption

1) We have assumed that they keep low target inventory of finished units that is 0.03% of total
sales.

Working

Calculation of Target Inventory

Total Revenue in 2018 131,500,000

Closing Stock in 2018 20,480,000

Closing Stock in Percentage of Total

Revenue 0.15%

Schedule 3:

Schedule 3A: Direct Material Usage Budget in Quantity and Dollars

For the year ending June 30, 2019
Materials
Physical
Units Raw Material Required for
Average Raw Material Per Unit
Budget Number of Units (meter) One Shirts (meter)
Direct
Material
Required
for Shirt 106,320 3.5 372,120
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Cost Budget
In Rupees In Meters
Available from beginning direct material inventory 520,220,000 88,882
To be purchased and used this period 2,982,131,850 750,593
Direct materials to be used this period 3,502,351,850 839,475

Assumptions

1) We have calculated the per meter cost by using a standard requirement of a shirt

2) We used the Total Raw Material Consumed in FY2018 to calculate the raw material
consumed per unit

3) We have assumed that raw material cost per meter will remain constant

Working

Material Cost
Total Raw Material Consumed 2982131850
Number of Units 106320
28048.64419

Schedule 3B

Schedule 3B: Direct Material Purchases Budget

For the year ending June 30,2019
Physical Units Budget Meter
To be used in production 839,475
Add target ending inventory 88,564
Total Requirements 928,039
Deduct Beginning
inventory 78,782
Purchases to be made 849,257
Cost Budget
Raw Material Cost 90,457,437,442
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Working

Calculation of Beginning

Inventory

Closing Stock of 2019 in Rupees 500,220,000

Cost per square meter 8013

Closing Stock of 2018 in ft. 62,426

Cost per Meter for Shirt

Material Cost per Unit 28,049

Total size in Meters Squared 3.5

Cost per Meter Square 8013.898339

Schedule 4: Direct Manufacturing Labour Costs Budget

For the year ending June 30, 2019
Output Units Produced (S2) Direct Manufacturing Labour Hours per Unit Total Hours Hourly Wage Rate Total
Shirts 106320 150 15948000 120 1913760000

Assumptions

1) We have assumed that wage rates are persistent over period of time

2) We have assumed that total number of hours per unit have remained constant

3) we have assumed the total monthly wage to Rs 25,000

We have assumed in a month there are 192 hours in total (8 working hours per day and 24 days in a
month
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Working
Calculation of Direct Manufacturing labor-hours per unit
Total Cost of Direct Manufacturing labor in Rupees 1,913,760,000
Hourly Wage Rate 120
Total Number of hours 1,5984,000
Number of units 106320
Hours per unit 154

Calculation of Hourly Wage

Monthly wage 23,000
Total Hours in a month 192
130
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Schedule 5

Schedule 5: Manufacturing Overhead Costs Budget

For the year ending June 30 2019

Manufacturing Operations Overhead Costs

Variable Costs

Stores and Spares consumed 1,324,990,995

Repairs and Maintenance 521,166,598

Fuel and Power 435,050

Printing and stationary and office supplies 2,838,652

legal and professional 4,901,999

Travelling 35,687,832

Transportation 5,443,679

Insurance 38,899,664

Vehicle Running 16,226,628

Communication 2,595,723

Subscription 494,128

Running loyalty 2,264,659,264

Technical Fee 10,639,260

Staff Catering, Transport and uniform 343,558,567

Provision/(Reversal)of stack in trade-Manufacturing

stock (11,170,602)

Provision/(Reversal)of stores and Spares (24,688,830)

other 23,415,262 4,560,093,868

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Fixed
Costs

Depreciation 1,509,613,000

Supervisor Fee 7,197,000

Rent, Rates and taxes 9,584,000 1,526,394,000

Total manufacturing operations overhead costs 6,086,487,868

=
Assumptions.
1) The variable manufacturing overheads have remained the same
2) Only 3 types of fixed manufacturing operations overhead costs
3) Fixed costs have remained the same
4) Variable costs have been calculated by dividing by the number of hours of 2017 and then multiplying
them with the values of 2018

Schedule 6A: Unit Costs of Ending Finished

Goods inventory June 30, 2019
Shirts
Cost per Input per
unit unit Total
Average Material Input 8013 115.81 927,986
Direct manufacturing labor 130 154 19,981
Manufacturing operations
overhead 588 154 90,551
Total 1,038,517

Schedule 6B: Ending Inventories Budget June 30,2019

Cost Per
Quantity Unit Total
Direct materials 88,564 8,013 709,663,332
Finished goods 3340 1,038,517 3,468,648,550
Total ending inventory 4,178,311,882
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Calculation of Input Per Unit

Total Requirements (3B) 928,039
Total Required Units 8013
Input Per Unit 115.81

Calculation of Manufacturing Operations Overhead

Total manufacturing operations overhead costs 6,086,487,868
Total Number of units 67,216
90,551

Schedule 7

Schedule 7: Cost of Goods Sold Budget

for the Year Ending June 31,2019

Total

Beginning finished goods inventory 20,480,000

Direct materials used 3,502,351,850

Direct manufacturing labor 1,913,760,000

Manufacturing overhead 6,086,487,868

Cost of goods manufactured 11,502,599,718

Cost of goods available for sale 11,523,079,718

Deduct ending finished goods inventory 3,468,648,550

Cost of goods sold 8,054,431,168

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Schedule 8

Schedule 8: Nonmanufacturing Costs Budget

For the year ending June 30,2019
Business Function Total Costs
Salaries, allowances and other
benefits 459,683,943
Rent, rates and taxes 3,266,923
Insurance 40,351,933
Repairs and maintenance 71,802,843
Depreciation 52,594,217
Amortization 83,403,797
Travelling 89,576,512
Legal and professional 165,340,787
Director fee 1,388,889
Vehicle running 18,258,755
Communication 12,955,835
Printing, stationery and office
supplies 2,077,147
Staff training 94,109,895
Staff transport and canteen 124,271,066
Security 42,462,695
Subscription 3,314,273
Utilities 202,995
Share registrar and related expenses 8,571,858
Others 714,797
Total 1,274,349,161
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Working for Schedule 8

Percentage 1+Percentage
2017 2018 Change Change 2019
Salaries,
allowances and
other benefits 334,891 392,357 0.172 1.17 459,684
Rent, rates and
taxes 2,135 2,641 0.237 1.24 3,267
Insurance 30,043 34,818 0.159 1.16 40,352
Repairs and
maintenance 68,905 70,339 0.021 1.02 71,803
Depreciation 21,946 33,974 0.548 1.55 52,594
Amortization 6,037 22,439 2.717 3.72 83,404
Travelling 62,834 75,023 0.194 1.19 89,577
Legal and
professional 207,084 185,039 -0.106 0.89 165,341
Director fee 1,125 1,250 0.111 1.11 1,389
Vehicle
running 15,267 16,696 0.094 1.09 18,259
Communication 15,777 14,297 -0.094 0.91 12,956
Printing,
Stationery and
office supplies 3,222 2,587 -0.197 0.80 2,077
Staff training 81,600 87,632 0.074 1.07 94,110
Staff transport
and canteen 32,528 63,579 0.955 1.95 124,271
Security 32,523 37,162 0.143 1.14 42,463
Subscription 3,893 3,592 -0.077 0.92 3,314
Utilities 1,002 451 -0.550 0.45 203
Share registrar
and related
expenses 7,728 8,139 0.053 1.05 8,572
Others 2,260 1,271 -0.438 0.56 715
Total 930,800 1,053,286 1,274,349

Assumption

1) The rate of change between the years have remained constant

2) There were no changes administrative expenses

3) We weren’t able to identify the costs as Fixed or Variable

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Income Statement

Budgeted Income Statement for Shahtaj Textile

For the Year Ended June 30, 2018

Revenues 126,674,508,300

Cost of Goods Sold 91,998,472,376

Gross Margin 34,676,035,624

Operating Costs 1,274,349,161

Operating Income 33,401,686,763

Variance Analysis

Level 1 Variance Analysis

Actual Static Budget Variance Static Budget
Shirts Shirts Shirts
Units 105200 -2800 108000

Revenues 106,652,501,400 -20,022,006,900 126,674,508,300

Variable
DM 2502351850 -1,000,000,000 3502351850
DL 1,853,760,000 -60,000,000 1,913,760,000
MOH 5,885,477,868 -201,010,000 6,086,487,868

Profit 96,410,911,682 -18,760,996,900 115,171,908,582

Reasons for Favorable and Unfavorable Variances

 Purchasing officer negotiated more skillfully than was planned in the budget,
 Purchasing manager bought in larger lot sizes than budgeted, thus obtaining quantity
discounts,
 Materials prices decreased unexpectedly due to, say, industry oversupply,
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 Budgeted purchase prices were set without careful analysis of the market,
 The hiring and use of under skilled workers,
 Inefficient scheduling of work so that the workforce was not optimally occupied;
 Poor maintenance of machines resulting in a high proportion of non-value-added labor;
 Unrealistic time standards.

Conclusion
Firms in Pakistan should start adopting new techniques of running a company, whether it’s related
to production, management, finance etc. because these new techniques help companies to become
efficient and more productive in every form.