1.

INTRODUCTION

1.1 Introduction of the Company:

“Legendary Fashion Crafts” is one of the best manufacturer, wholesaler and

exporter of the best and unique man and woman wear garments in Nepal.
It was established on 2nd July 2002 registering to the Government Authorities of
Nepal. It has its own factory and office at Thamel, Kathmandu, Nepal. So,
any customers they are interested for products can visit the factory’s
showroom and make choices themselves with the different designs and
sizes. And, the customized orders are acceptable. Mr. Arjun Thapa was the
Production Supervisor of the company. Along with his Mrs. Soniya Thapa, Mr.
Sandeep Poudel, Mr. Pradeep Kadel and other members are also working as a
staff.

The Legendary Fashion Crafts produces the over all products of both man and woman
wear like Caps, Hats, Gloves, Socks, Shoes, Bags, Mufflers, Shawls, Shirts, Tops,
Trousers, Skirts, Pull over, Jackets, Sweaters and other accessories manufactured in
cotton, woolen, silk and hemp fabrications. The other existing fabulous products of
superb artisans are Bone items, well packed herbal Incenses in sweetness of fragrance
and fine Statues made up of clay and ceramic. These beautiful products are
handcrafted in the Kingdom of Nepal using traditional handloom tools. The fine art
seen in the products are the gifted creation and skilled handy work of its artisans.

Company Philosophy:
The company is very much concentrates on promotion of the Nepalese handmade
products to encourage and develop the skills and lifestyle of the people from the
remote Himalayan parts of the country. They employ as more workers as possible
from the economic level and village women while offering benefits such as health-
care, education to their children and many more. They trust on fair trade leading to
social benefits and do focus on profit selfless and of course 100% free from child-
labor. They select the workers under the strict supervision of the company.

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Following are the principles of Legendary Fashion Craft services:
* Genuine products
* Items of competitive price
* Wide variety of original items
* Guaranteed on quality & design

Products:
Legendary Fashion Crafts have varieties of quality Nepalese handicrafts such as
fashion garments, Nepali pure woolen sweaters, Caps, Hats, Gloves, Socks, Shoes,
Bags, Mufflers, Shawls, Shirts, Tops, Trousers, Skirts, Pull over, Jackets, Sweaters
and other accessories manufactured in cotton, woolen, silk and hemp fabrications. etc.
to export all over the world. Custom designs are always possible and encouraged to
implement on our products as we believe that designs are based on the imagination.

Raw Material:
Most of our raw materials such as Hemp, Nettle, Cotton, Silk and paper products
come from the mountains and they are made by expert hand locally. The local village
people collets Hemp and Nettles from the source area of mountain regions. They
grows in the wild still collection of these raw materials does not affects to the nature,
thus it is eco friendly too.

Exports:
It exports their products to any part of the world. The number of frequent consumers
from Europe and American continent are using their export facilities.
1. By courier express service: 3-4 working days
2. By air cargo: 7 working days.
3. By water/ship: 30 to 45 days.

Contact Detail:
Telephone: 0977-1-4700253
FAX: 0977-1-4700253
P.O.Box: 11275
Website: http://www.legendaryfashion.com

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1.2 Introduction of the Managerial Accounting:
Managerial Accounting refers to the process of making essential data available to
company managers who directly responsible for a firm's operations. Managerial
Accounting is also known as 'cost accounting’, which enables decision makers to
create value for their organization through effective use of resources, efficient actions
and managing people. It is also the process of identifying, measuring, analyzing,
interpreting, and communicating information for the pursuit of an organization's
goals.
The key difference between managerial and financial accounting is that managerial
accounting information is aimed at helping managers within the organization make
decisions. In contrast, financial accounting is aimed at providing information to
parties outside the organization.

1.2.1 Importance of Managerial Accounting

The main aim of managerial accounting is to improve the efficiency and quality of
operations by providing program owners and all others with suitable and applicable
cost based performance information to permit for nonstop improvement in distributing
the output to outcome the stockholders .Managerial accounting has been developed
and used with all from the beginning times to help all the directors to understand the
costs of running a project .Modern managerial accounting is created during the
industrial revolution during the difficulties of running a large scale business which
show the way to the development of scheme for recording and checking costs to help
business proprietors and managers to finalize and make conclusions.
So, to conclude, for any business unit starting from the smallest business activity to
the largest multinational business to be succeeded requires the use of managerial
accounting concept and practices. This accounting provides data to owners for
preparation and scheming of rating products and services for customers too. The main
focus of managerial accounting is to help the managers for making better decisions.
Because of all these reasons, businesses and organizations hire on managerial
accountants and thereby, they are becoming integral persons of decision making
teams instead of just data providers.

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1.2.2 Purpose of Managerial Accounting:
Managerial accounting is all about providing financial information to company
management to assist them in taking decisions regarding growth, development,
expansion and other strategic and financial decisions. The following major activities
that management accountants undertake:-

 Allocation of various costs

 Analyzing rates and quantities (especially in case of manufacturing concerns)
 Preparing annual budgets and related reports
 Preparing business metrics, such as returns on investments, EBIT, etc.
 Forecasting sales, revenue and financial expenses and gains
 Price Modeling
 Strategic planning and management advise
 Various reporting based upon industrial, geographical and client based
variables
 Analysis of cost, cost-volume and cost-volume-profit statements
 Capital Budgeting
 Calculating and analyzing profitability of product or venture
 Life cycle cost analysis
 Sales Managements Scorecards
 IT Cost transparency
Besides the above, a management accountant may also be responsible for performing
analysis related to land/ building/ plant purchasing vs. leasing, client profitability
analysis and prepare reports and presentations for internal financial discussions,
meetings and communications, etc.

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 2. INTRODUCTION OF THE MANAGEMENT TOOL

2.1 Cost Volume Profit (CVP) Analysis:

Cost-Volume-profit (CVP), in managerial economics is a form of cost accounting. It

is a simplified model, useful for elementary instruction and for short-run decisions.
Cost-volume-profit (CVP) analysis expresses the relationship between a company’s
expenses, its volume of business, and the resulting profit or net income. It is a
systematic method of examining the relationship between changes in activity (output)
and changes in total sales revenue, expenses and net profit. It is supplementary tool of
profit planning. It tells many things about the relation ship between the business
variables.
Cost-volume-profit (CVP) analysis expands the use of information provided by
breakeven analysis. A critical part of CVP analysis is the point where total revenues
equal total costs (both fixed and variable costs). At this breakeven point (BEP), a
company will experience no income or loss. This BEP can be an initial examination
that precedes more detailed CVP analysis.

Cost-volume-profit analysis employs the same basic assumptions as in breakeven

analysis. The assumptions underlying CVP analysis are:

The behavior of both costs and revenues is linear throughout the relevant range of
activity. (This assumption precludes the concept of volume discounts on either
purchased materials or sales.) Costs can be classified accurately as either fixed or
variable. Changes in activity are the only factors that affect costs. All units produced
are sold (there is no ending finished goods inventory). When a company sells more
than one type of product, the sales mix (the ratio of each product to total sales) will
remain constant.

The components of Cost-Volume-Profit Analysis are:

 Level or volume of activity

 Unit Selling Prices

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  Variable cost per unit
 Total fixed costs
 Sales mix

CVP assumes the following:

 Constant sales price;

 Constant variable cost per unit;
 Constant total fixed cost;
 Constant sales mix;
 Units sold equal units produced.

These are simplifying, largely linearizing assumptions, which are often implicitly
assumed in elementary discussions of costs and profits. In more advanced treatments
and practice, costs and revenue are nonlinear and the analysis is more complicated,
but the intuition afforded by linear CVP remains basic and useful.

One of the main Methods of calculating CVP is Profit volume ratio: which is
(contribution /sales)*100 = this gives us profit volume ratio.

 Contribution stands for Sales minus variable costs.

Therefore it gives us the profit added per unit of variable costs.

Basic graph

Basic graph of CVP, demonstrating relation of Total Costs, Sales, and Profit and
Loss.

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The assumptions of the CVP model yield the following linear equations for total
costs and total revenue (sales):

Total cost = Total Fixed Costs + Total Variable Cost

Total Revenue= Sales Price * Number of Units

In symbols:

TC = FC + VC

TR = P* Q

= ((P-V) +V)*Q

= (C+V)*Q

The break-even point may be calculated as:

BEP (units) = fixed cost / (Net sales price per unit - variable costs per unit)
= FC / CMPU
BEP (dollars) = BEP (units) x selling price

3. APPLICATION OF MANAGERIAL ACCOUNTING

TOOL IN THE BUSINESS

3.1 Products & Price:

Legendary Fashion Crafts Pvt. Ltd. produces various products. But here for our
analysis we have only taken three products for our simplicity.
Variable Costs & Fixed cost:
Type of Products materials needed to manufacture a
manufactured product Rate
1.Cotton Jacket Fabric-Canvass cotton(3M) 150/Metr
Polar inner Lining(1/2kg) 450/KG
Zipper, Thread 40/Pcs
Accessories 50/Pcs

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2. Cotton Dress Fabrics- Fine Cotton(2.5M) 100/Metr
Embroider 30/Pcs
Thread 20/Pcs
Accessories 35/Pcs
3.Cotton Trouser Fabrics- Shyama Cotton(3.5M) 90/Metr
Zipper, Thread 40/Pcs
Accessories 60/Pcs

Fixed costs Amount(Rs.)

Salary & Wages 840000
Rent Expenses 12,00,00
Electricity & Telephone charge 48,000
Total Fixed Cost 888000

Units produce per Selling Price Per sales unit in a

Particular year unit year
1.Cotton Jacket 5000 Pcs Rs 1020 3500pcs
2. Cotton Dress 12000 Pcs Rs 485 9000Pcs
3.Cotton Trouser 10000 Pcs Rs 600 7000pcs

3.2 Break Even Analysis:

Yearly Break Even Analysis For Legendary Fashion Craft Pvt.ltd.
Particular Cotton Jacket Cotton Dress Cotton Trouser Total
Selling Price Per Unit 1020 485 600 2105
Selling Unit Per Year 3500 9000 7000 19500
Sales Revenue 3570000 4365000 4200000 12135000
Variable Cost Per Unit 765 185 190 1140
Total variable cost 2677500 1665000 1330000 5672500
Contribution Margin 892500 2700000 2870000 6462500
Less: Fixed Cost 888000
Net Income 5574500

Calculation of the weighted average contribution margin per unit

Items Sales Mix CM WACM WACMPU
Cotton Jacket 25% 892500 223125 63.75
Cotton Dress 50% 2700000 1350000 150
Cotton Trouser 25% 2870000 717500 102.5
Total WACMPU 316.25

Calculation Of Break Even Analysis

Cotton Cotton Cotton
Particular Jacket Dress Trouser Total

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 Break Even Analysis In Units 13929.41176 5920 8663.414634 28512.8264
Break Even Analysis In Rupees 14208000 2871200 5198048.78 22277248.78

BEP in units= Fixed costs/ WACMPU

3.3 Sensitivity Analysis:

Sensitivity Analysis When Selling Price Per Unit Changed by 10%

Cotton Jacket Cotton Dress Cotton Trouser
10% 10% 10% 10% 10% 10%
Increase Decrease Increase Decrease Increase in Decrease
Particular in SP in SP in SP in SP SP in SP
Selling Price Per unit 1122 918 533.5 436.5 660 540
less: Variable cost
Per unit 765 765 185 185 190 190
Contribution Margin
PU 357 153 348.5 251.5 470 350

Break Even in 2487.39 5803.921 2548.06 3530.81 1889.361 2537.14

Units 496 569 313 511 702 3
Break Even in 279085 135939 1541200 1246978. 137005
Rupees 7.14 5328000 1.68 .8 723 7

Sensitivity Analysis When Variable Cost Changed by 10%

Cotton Jacket Cotton Dress Cotton Trouser
10% 10% 10% 10% 10% 10%
Increase Decrease Increase Decrease Increase Decreas
Particular in VC in VC in VC in VC in VC e in VC
Selling Price Per unit 1020 1020 485 485 600 600
less: Variable cost Per
unit 841.5 688.5 203.5 166.5 209 171
Contribution Margin
PU 178.5 331.5 281.5 318.5 391 429

4974.78 2678.733 3154.52 2788.069 2271.099 2069.9

Break Even in Units 992 032 931 07 744 3
Break Even in 507428 2732307. 152994 1352213. 1362659. 124195
Rupees 5.71 692 6.71 5 847 8