Final Project

Project on Sparkle Ball

Submitted to:
Afrin Rifat (Ani)
Submitted By:
NEXUS GROUP
Group members:
Name:

ID.

MD. Sazzad Hossain

1220295030

Md. Taseen Bin Alam

1311191030

Nasib Hasan

1410905030

Omar Faruk

1420148030

Bellal Hossain

1420361030

Table of Contents
Items
Letter of Transmittal
Abstract
Background

Page
No.
03
04
04-05

Industry Information
Manufacturing process
Determining the maximum possible production
Production cost
Selling and Support cost
Prime cost and Conversion cost
Full cost
Unit product Cost
Break down of the cost
Allocation Bases
Product line profitability under simple costing
Product line profitability under ABC costing
Pricing Strategy
Master Budgeting

06-08
09
10
10-12
12
13
13
14
15
15
16
17
18
18-23

Budgeted Income Statement

Contribution Format Income Statement
Break Even point in units

24
24
25

Margin of Safety

25

Sensitivity Analysis

26

LETTER OF TRANSMITTAL

25th March, 2016.

Afrin Rifat (Ani)
2

Senior Lecturer,
School of Business,
North South University
Subject: Submission of Report on Sparkle Ball.

Dear Mam,

As part of our ACT333 course, we are pleased to submit the report on our manufacturing good
(Sparkle Ball). We worked as a team to prepare the report as you instructed in the class. We are
pleased to inform you that we thoroughly enjoyed the group project. We have gathered best
possible assumptions and realistic information as much as possible from our various sources and
departments.

The entire duration of preparing this report has been immensely helpful for us, a golden
opportunity to increase our ideas, concepts and interpersonal skills preparing a complete
financial report. Therefore, we like to convey our deep gratitude for your valuable guidance and
sincere appreciation. We hope you will enjoy reading this paper.
Thank you (Mam) for believing in us and giving us this wonderful opportunity.
Sincerely Yours,
Members of Nexus group.

Abstract
We are producing Sparkle Ball. In the project we have discuss about the industry overview of
Sparkle Ball and we also talked about the current market of our country. We have collected the
3

cost from our sources and with the help of that we analyze it. We have calculated different things
and prepared a budget of it. Due to this procedure we try to use more realistic data. In the project
we have shown the calculation of ABC costing, simple costing, preparing budget, prime cost, full
cost, forecast data, material budget, and also sensitivity analysis.

1. Background about Sparkle Ball

A Sparkle Ball is an ornament handmade out of Christmas led lights and plastic cups. Inst.
Different methods can be used to attach the cups including soldering, cable, and stapling with a
stapler. One bulbs of led light is inserted through a hole in the cup bottoms, so each cup becomes
a reflective chamber. The size and shape of the cup determine the size of the sparkle bal.

The industry we are working with is not fully established in Bangladesh our product is Sparkle
Ball and we made Sparkle Ball with plastic cups, Christmas lights and stapling with a stapler.
This product is mainly used for home decoration, party decoration, restaurant decoration and
many different decorating purposes. Both upper and middle class people are the target customer
of this product, Because Sparkle Ball is not too much costly. Sparkle ball industry is not that
much established in Bangladesh but it has a very good future. As many people are unemployed
in our country it may be good solution for them. Like other sector china is also leading this
industry. Bangladesh has the potential of being the leader in this country because you can make
4

this product of your own at home through some practical experience. A large number of women
waste their time without doing anything at home it can be a way to earn their pocket money as
well. France, Italy, USA and Germany are already established in this sector and in Asia India is
in the growing up. Many Indian women are doing this business regularly through website. In
Bangladesh many young boys and girls are very interested to do this type of job. Only a few
steps are required to produce a Sparkle Ball thus it is really easy to produce.

Why Sparkle Ball?

We choose this product because of its bright future. People are conscious about their home
decoration and others decoration and they are getting more interested fashionable lifestyle. The
supply of these product compare to the increasing demand is very low. The numbers of products
that are available in the market are imported thus buying home decorate product are very costly.
We want serve demand of our local market being the first local producer of Sparkle Ball in
Bangladesh. We have the cost advantage over international producer thus it may helpful to grave
our target market. It is required little investment to start the business as a student which may be
the main constrains to be a young entrepreneur. You can do this business through virtual world
where you do not need to invest physical evidence. As any local producer is still not starting to
do business in this sector we have the advantage of monopoly in the market. We have the
variation in product which should be good enough to attract the customer.
Well, with this type of reason we have some common reasons too. As we were 5 members, we
thought that Sparkle Ball could be easily made if we divided certain parts among ourselves. Like
soldering, cable ties, hot glue gun, and stapling with a pier stapler and joining it and finally. So if
we can manage the Christmas lights and plastic cups, with our tools we can easily make a
Sparkle Ball. So without going into further complicated activities, we decided to make Sparkle
Ball as it also have demand in household, wedding ceremony and offices. So we thought our
business will must be a profitable one.

2. Industry & Competitor

Sparkle Ball industry is a handicraft industry. Recently it does not have any types of
competitor .But in different country we can see them. China is leader in this sector. As there is no
local producer for Sparkle Ball thus we are looking for first mover advantage in BD market. We
are promised to provide best quality product with comparatively low cost. We believe that this
industry may be the next booming sector for Bangladesh. We do not have any direct competitor
in this industry but as it has bright future so in near future we will have some potential
competitors. Some of our possible competitors profiles are given below.

Banglacraft
The Banglacrafts manufacturers & exporters had formed a national association in 1979 under the
name and style of BANGLADESH HANDICRAFTS MANUFACTURERS AND EXPORTERS
ASSOCIATION. In short BANGLACRAFT. The Association was mainly formed with the
Manufacturers, Exporters Traders, Producers, Designers, Promoters and Suppliers of handicrafts
items. Banglacraft also became an A class member and became affiliated with the Federation
of Bangladesh Chambers of Commerce & Industry (FBCCI).So it may will be our competitor.

Archies
6

A famous Indian based gift shop in Bangladesh sell different types of gifts. This shop mainly sell
product imported from India within a reasonable price. It was started in 1979 by selling song
books, posters and leather patches. The company's main product, greeting cards, was introduced
in 1980. The company expanded its product range to include artificial jewelry and Sparkle Ball
ware accordingly changed its name to Archies Limited in 2002. This may will also be a main
potential competitor to us.

BD Handicrafts
It is an online based gift shop of locally produced handicrafts seers throughout the country and
worldwide. They are using local raw materials to produce their products. They are promised to
better service and faster delivery. They experiment you a better shopping through their website.
The subscriber of their website is increasing day by day because of increasing use of internet.

UpoharBD

A Bangladeshi online gift shop and they deliver gifts for you throughout Dhaka, Chittagong,
Sylhet and all other cities in Bangladesh from different country of the world where you can send
gift for your friends and family. They do not charge for deliver its for. They will always give
you the best deal for Bangladeshi gift but also the free gift delivery service in Dhaka will make
your money valuable. So it has highest possibility to produce sparkleball.

Hallmark
An important potential competitor for us will be Hallmark. It has number of retail shop around
the country. They have very large collection for the customer. This company is operating its
business throughout the world.

Aarong
The largest retail chain in Bangladesh is famous for its handicrafts products. This company
produce collects handicrafts from different part of the country. Upholding products and
indigenous crafts and styles of Bangladesh and empowering rural artisans and now it is more
than just a retail chain. It has very good demand in the market. The true value of this globally
reputed brand is reflected in the positive impact it has on the lives of people it reaches every day.

3. Manufacturing Process
Put in Order
First we have to arrange the plastic cups according pattern. As the type of the plastic cups differs
from each other we have to take one sizes cup. So we take one sizes plastic cup which are tea
cup. Then before arrangement we have to make a hole on each cup by a drill machine. As it is
our first product so for simplicity we made the hole through candle and small steel .Then we
made a half shape of a ball by stapling with each other .after that we made another half shape of
ball.

Setting of Christmas led light

After making two half shape ball We need Christmas light. There are different sets of Christmas
light. We use 1sets of 80pcs light. We arrange them accordingly in the hole of every two plastic
cups.

Attaching
After setting light we attached two half part and made the sparkle ball.

Checking
In this step we check our product whether it is finalized properly or not. After check our ball
proper light or not through electricity and our product is finally worked.

4. Maximum production
Units/hour

Labor

Per day

8 hours

Total day

22

Total hour

880

Maximum production

88

Production Cost:
Direct Material + Direct Labor + Manufacturing Overhead

Direct Material Cost:

Items

Quantity

Price Per

Total

Units to be

Total

Item (BDT)

Cost/unit

produced

production

Plastic Cups

160

(BDT)
160

Led light

1 set

200

200

Total

360

Direct Labor Cost:

10

cost (BDT)

88

31,680

Total

Labor

Total

Labor

Per

Total

Units to

Cost/unit

hour

cost/per

be

(BDT)

Cost

month(BDT

produced

880

(BDT) )
30
26400

Labor Hour/day working hour/mont

days
5

22

88

300

Manufacturing Overhead:
Variable:
Items

Staples

Total

Total

needed/day

days/

Cost

1 packet

40

month
22

880

Total

Glass

Total

Cost/minu

Total

Plastic

drilled/mi

minutes

te

glass/day
640

nute
64

needed/day
10

Staple
Items

Electr

Price/packet

Cost per
unit

cost/day

Total
day/mont
h

Total
cost

88088=
10
Cost per
unit

20

22

440

44088= 5

1320

10+5=15

icity
bill
Total

Fixed
Items

Total Cost of

Units to be produced

Cost/unit(BDT)

Staff salary
Rent Expense
Electricity Bill
Total

production(BDT)
5000
3000
1000
9000

88

102

11

Unit production Cost:

Direct Materials per unit + Direct Labor per unit + Manufacturing Overhead
TK 360 + TK 300 + TK 117 = TK777

Support cost and Selling Cost:

We made an assumption that we will only sell our product in Dhaka City, So in order
to reach our desired customer we will advertise our product through Online
Marketing which will only consist of information system cost.
Product distribution would be another cost for our product so we will be incurring TK
5000 for our delivery purpose cost.

Items
Information System
Distribution
Total

Total Cost(BDT)
1000
5000
6000

Prime Cost & Conversion Cost:

Prime Cost = Direct Material Cost + Direct Labor Cost

= (31680+26400) BDT
= 58080 BDT
Conversion Cost = Direct Labor Cost + Indirect Manufacturing Cost
=26400+(1320+9000) BDT
=36720BDT

12

Full Cost:

Items
Direct Materials
Direct Labor
Manufacturing overhead
Total Manufacturing Cost
Add: Selling and support costs
Total:

BDT
31680
26400
10320

BDT

68400
6000
74400

Unit Product Cost:

As we have selected Direct Manufacturing Labor as our allocation base, So our Budgeted
manufacturing overhead rate = Total Manufacturing Overhead Cost / Machine Hour
= 10320/880 = 11.73tk

Direct manufacturing labor cost

Direct manufacturing labor hours

Total
26400
880 hours

Manufacturing overhead cost allocated

10320

(880 hours x 11.73 taka)

Job cost:
Job costing

Taka
13

Direct materials
Direct labor
Manufacturing overhead allocated
Total

31680
26400
10320
68400

Break down of the cost:

Budgeted Overhead Cost

Allocation of IS cost
10000%; 100%
Total

Support
departme
nt

Operating
department

Informatio
n system

Productio
n

Distributio
n

1000
(1000)

10320
00

5000
1000

15320
1000

10320

6000

16320

Total

Allocation Bases (MOH & Support cost):

Name of the cost

Allocation Bases

Explanation

Staple

Total unit produced

Electricity bill drill

machine

Machine hour

Distribution

Total units sells

How much staple we need it

always depends on our unit
production.
Electricity bill depends on
per.machine hour.so our cost
driver per machine hour
The more we can sell the more
will be our distribution cost. So
total unit of sells is our
distribution cost.

14

Staff cost

Labor Hours

Information System

Total production

Labor cost cannot be determined

straight away. So we estimated
that, it can be predict depending
on our labor hours.
Simply we need to promote our
product. It itself is a cost driver.

Product line profitability under simple costing:

Details

TK

TK

Revenue (1162*80)
Less: COGS (777*80)

92960
(62160)

Gross Profit

30800

Other cost:
Distribution

5000

Information System

1000

(6000)

operating Income

24800

Percentage

26.68%

15

Product line profitability under ABC costing:

Activity

Staple

Allocation
bases

Total
budgeted
indirect cost

Budgeted quantity of cost Allocation

bases

Budgeted
indirect cost
rate

Total unit
production

880

88

10/unit

Machine
Hour

440

22*(10minute/60/8hourday)=0.458

960/hour

Distribution

Total unit
sells

5000

80

62.5/unit

Staff cost

Labor hour

5000

22*8=176

28.41/hour

Information
System

Total
production

1000

88

11.36/unit

Rent Expense

Total
production

3000

88

34.09/unit

Electricity bill

Total
production

1000

88

11.36/unit

Drill machine
bill

Details
Revenue
Direct Cost
Direct material
Direct labor
Indirect cost (ABC)

Tk

Tk
92960
31680
26400

16

Staples (88*10)
Drill machine bill (0.458*960)
Stuff salary (17628.41)
Distribution(80*62.5)
Information System (88*11.36)
Rent Expense (34.09*88)
Electricity bill (11.36*88)

880
440
5000
5000
1000
3000
1000
Total cost
(74400)
Operating income
18560
Percentage
19.97%
As we have seen that simple costing method has a more net income per
percentage than ABC costing so we will be using simple method for further
budgeting.

Pricing strategy:

In Taka
Full Cost
Mark Up
25%)
Selling Price

Rounded (In Taka)

930
(930

232.5
1162.5

1162

As we want to sell our product in a less competitive market we dont really need to depend on
market supply to determine our pricing. Therefore, we have followed the cost based pricing
strategy in our pricing strategy. As for pricing purposes firstly we have determined the full cost
of our product that we have chosen desired markup percentage. We have chosen a mark-up
percentage of 25% of our product.

Master budgeting:

Schedule 1:

17

Sales Budget
For the month ending March 31, 2016

Units
Sparkle ball

80

Selling Price

Total Revenue

1162

92960

Schedule 2:
Production Budget
For the month ending March 31, 2016
Sparkle ball
80
8
88
(00)

Budgeted unit sales

(+) Target ending finished goods
Total requirement
(-) Beginning finished goods inventory
Unit to be produced

80

Schedule 3 A: Direct materials usage Budget:

Physical Units Budget

Plastic

LED

Cups

Light

Plastic Cups

14080

(16088)

cups

LED Light

Total

88 sets

(188)

18

Units Direct Material

14080

to be used in

cups

88 sets

production

Cost Budget:
Plastic Cups

14080

(14080 1)
LED Light

17600

(88200)

Total cost of Direct

14080

17600

31680

materials to be used in
the production

Schedule 3B: Direct Materials Purchase Budget

Physical Units Budget

Plastic

Plastic Cups

Cups
14080 cups

(160*88)
Led Light
(88*1)
Add: Desired ending inventory

LED Light

88 sets
1280 cups

8 sets

19

Total

Units Direct Material to be

15360 cups

96 sets

purchased

Cost budget:
Plastic Cups

15360

(15360*1)
LED Light

19200

(96*200)
Direct materials to be used this

15360

19200

34560

period

Schedule 4: Direct manufacturing labor cost budget

For the month ending march 31, 2015
Produc
t

Output units
produced
(schedule 2)

Sparkl
e Ball

88

Direct
manufacturing
Labor-hours per
unit
10

Total Hours

Hourly wage
rate in Taka

Total (in Taka)

880

30

26400

20

Schedule 05:

Manufacturing overhead cost budget

Items

Amount

Variable MOH
Fixed MOH

1320
9000

Total MOH

10320
For the month ending march 31, 2016

MOH Rate and Cost

Budgeted MOH rate: 10320880 = 11.73/Direct Manufacturing Labor Hour
Budgeted MOH per unit: 1032088 = 117.27 taka.
Schedule 6A:
Unit cost of ending finished goods inventory
December 31, 2015
Cost per
Input per unit Total cost in Taka
unit of input
of output
in Taka
Cups
Led light
Direct manufacturing labor
Manufacturing overhead
Total

1
200

1608
8

1280
1600

16
8

2400
936
6216

305=150
117

21

Schedule 6B:
Ending inventory budget
31 December, 2015

Direct materials:
Cups
Led light
Finished goods
Sparkle ball
Total Ending Inventory

Quantity

Cost per
unit (In
Taka)

Total

160*88*20%=261
8
18

2618

200

3600

777

6216
12434

Schedule 7:
Cost of goods sold budget
For the year ending December 31, 2015
From
Total in Taka
schedule
Beginning finished goods inventory
Direct materials used
Direct manufacturing labor
Manufacturing overhead
Cost of goods available for sale
Less: Ending finished goods
inventory
Cost of goods sold

0
3A
4
5

31680
26400
10320
68400
(6216)
62184

22

Budgeted Income Statement:

Budgeted income statement for A-Team Inc.

For the year ending December 31, 2016
Total (in Taka)
Revenues

Schedule 1

Cost of goods sold

Schedule 7

92960
(62184)

Gross margin

30776

Operating costs:
Distribution Cost

5000

Information
system
Operating income

1000

(6000)
24776

Contribution Format Income Statement:

Price/unit

Total unit

Total

Revenue

1162

80

92960

Cups

160

80

12800

Led light

200

80

16000

Staples

10

80

800

Electricity Bill

80

400

Direct Labor

300

80

24000

Total Variable Cost

675

54000

Contribution Margin

487

38960

Fixed Costs:
Staff Salary

62.5

5000

Rent Expense

37.5

3000

Electricity bill

12.5

1000

Distribution

62.5

5000

Information System

12.5

1000
23

Total Fixed Cost

187.5

15000

Net Operating Income

23960

Break Even Point In Units:

Fixed Cost
Contribution Margin
15000
487
=30.80
= 31units

Break Even Point In sales: Fixed Cost

Contribution Margin Percentage

15000 0.4191 = 35791

Contribution Margin percentage = Contribution Margin Per Unit / selling Price Per Unit
= 487/1162
= 0.4191 %

Margin of Safety:

Margin of safety= 92960 - 35791

= 57169
Margin of Safety in Units: 80-31
= 49
Criticism: The result we got will help us to make an overview of our job that in order to
achieve the break-even point we will have to decrease our sale by 57169 TK or 49 Units.So
the assumption we are making that we will be in the safe zone to run our business.

24

Degree of Operating Leverage:

Contribution Margin / Operating Income
38960 / 23960 = 1.6
Criticism: The result we got means that when the sales will be 80 Unit a percentage change in
sales and contribution margin will result in 1.6 time change in our operating income.

Sensitivity Analysis:
Key Assumptions
Units
Sold

Sellin
g
Price

Revenue
Varia
ble
Cost
per
unit

Total
Variabl
e cost

Contribu
tion
Margin

Fixed
Cost

Budgeted Operating
Income

In Taka

Master
Budget
Case A
(12%
increase)

80

1162

92960

675

54000

38960

15000

23960

Change
from
master
budget
0

90

1162

104580

675

60750

43830

15000

28830

27.56%

Case B
(16%
Decrease
)

67

1162

77854

675

45225

32629

15000

17629

22.64%

Criticism: A change in the demand will always effect the revenue because as we have always assumed
that our production will be depending on the market demand. If for case A increase of 12% demand
increasing our sells by 10 Units and the revenue increased by 4870, it will result the contribution margin
increased by Tk 4870 as the fixed costs would be the same we are going to generate more revenue at the
same time.
And if for case B, Demands decreased by 16% following the same format then we will also have to
decrease our production as well the sale of the product, It will cause a decrease in revenue, sales in units
and contribution margin. So here we will be producing less amount and expenditure over the same fixed
cost. This will result a decrease in the operating income and the percentage of the total revenue.
25

Conclusion: If we will reduce our cost, our profit will increase. We can also decrease our selling
price. As a result our selling units will increase. So, we can profit more.

So this is all about our sparkle ball project report.

Miss

26