ACT 333 Project

08-Aug-14

Atlantic Furniture

Sofa cum Shelf

Submitted to:

Ms. Nabila Nisha [NBN]

Lecturer

Course: ACT 333

 Group Name: Atlantic

Section : 2

SUBMITTED BY:

Name ID
Mushfiqur Rahman 1110685030
Avijit Ghosh 1121141030
Masood Asrafi 1120641030
Suvra Saha 1110879030

1
Abstract
Our company Atlantic Furniture is a brand new company which will introduce low cost, multi-
functional and attractive furniture for middle class and lower middle class people. This report
provides the review of the companys cost structure and introduces the products. We have
done mentioned the manufacturing process, maximum production unit, all the relevant cost,
cost strategy, calculation for determining sales units and done costing through both simple and
activity based costing, determination of prime, conversion and full cost, master budgeting,
break-even analysis, risk analysis and sensitivity analysis. We have also prepared Income
stamen in both traditional and contribution format and a product line profitability report. We
are confident that these information will help the reader to understand our businesss cost
structure and have a clear view of how we are conducting the business.

2
Letter of Transmittal
9th August 2014

To: Ms. Nabila Nisha (NbN),

Lecturer,
School of Business
North South University

Subject: Submission of Term project of ACT333.2

Dear Maam,

Firstly wed like to thank you to give us this opportunity to prepare and prove ourselves through
this report on Cost structure analyses.

We have applied the various theoretical knowledge that we gathered through the course to this
report. Furthermore we have tried to produce a theoretically and numerically accurate analysis
on the cost structure of Atlantic Furniture and determine the proper costing for our products.

We further would want to take this opportunity to thank you for your support and guidance
through this report and all the knowledge that you helped us acquire through this course.

Mushfiqur Rahman Id: 1110685030

Masood Asrafi Id: 1120641030

Avijit Ghosh Id: 1121141030

Suvra Saha Id: 1110879030

We hereby submit this report to you, looking forward to your acceptance.

Thank you.

3
Table of Contents
Page No.
Introduction .. 5
Competitor Analysis. 6
Manufacturing Process 6
Maximum Production Capacity. 7
Cost and its classification 7
Determining quantity of sales 9
Simple Costing .. 11
Cost Strategy. 11
Prime Cost. 12
Conversion Cost 13
Full Cost.. 13
Activity Based Costing Calculating activity rates.. 14
Reasons for selecting the cost drivers. 15
Activity Based Costing. 16
Product line Profitability Report Simple Costing.. 17
Activity Based Costing. 17
Cost Strategy.. 17
Appropriateness of Pricing Strategy. 19
Master Budgets. 19
Revenue Budget. 19
Production Budget 20
Direct Material Usage Budget.. 20
Direct Material Purchase Budget 21
Direct labor Budget.. 21
Manufacturing Overhead Budget.. 22
Manufacturing Cost per Unit. 23
Ending Inventory Budget.. 23
Cost of Goods Sold Budget.. 24
Income Statements Traditional Format. 24
Contribution Format 25
Break Even Analysis Break Even Analysis. 26
Margin of Safety 26
Comment on Riskiness of the product.. 26
Scenario Analysis Calculation of Operating Profit: Scenario 1 27
Calculation of Operating Profit: Scenario 2 27
Calculation of Operating Profit: Scenario 3 28
Summary of Scenario Analysis 29

4
INTRODUCTION:

o Its a multipurpose furniture; a

three in one product.
o It can serve the purpose of a
sofa,
o a self for books, newspapers
and magazines and
o a bed too, occasionally.

When the bottom shelf is removed, it

becomes a Divan, which is our second
product.

It is multi-purpose furniture made of wood and plywood. When the furniture market is
dominated with mostly high end luxurious sofas, we wanted to come up with a product that is
affordable to the middle and lower middle class but yet, looks very sophisticated. Moreover, we
wanted to capture the on growing bachelor population working or studying in Dhaka who are
always looking for some affordable furniture to decorate their temporary homes.

The nature of our business is manufacturing and retailing. We will hire a shop which will be
used for manufacturing as well as warehousing. Our selling activities, though, will be done
online. We will market our product through Facebook and take orders online or through
telephone. We want to carefully tap our target market segment and as we become popular, we
will introduce new innovative and out of ordinary products at affordable prices.

5
In the real world, our current product has no perfect substitute. Other firms usually sell a
typical Sofa Cum Shelf or shelf or a bed but never have introduced something like this which
can serve the function of all of these three products that too in such an affordable price.

COMPETITOR ANALYSIS:
The furniture industry of Bangladesh consists of different kinds of sellers. There are high end
furniture companies like Home & Dcor, Touchwood, Navanna etc. There are also companies
like Otobi which mostly targets the middle class. And then there are other manufacturers who
are not under any brand but sell through their own small shops like we see in Panthapath who
targets the low income earners.

Income wise, the target market of the furniture businessmen of Panthapath or any other local
shop and us are the same but we will differentiate ourselves as being more non-traditional. Our
current and future products will not be like the typical furniture that our competitors sell but
would have a touch of art in them. We will be creative and innovative with our product design.
This differentiation strategy will make us unique and will provide us immunity against the
intense competition that runs through the industry.

THE MANUFACTURING PROCESS:

The steps to make the product are given below starting it from scratch:

1. Cutting the wood according to the size and shape preferred. This one of the most
important step as inexperienced labors, in this step, wastes a lot of direct material.
2. The next step is to polish the wood with the block pane. This step can be very time
consuming for an inexperienced labor.
3. Then we need to fit the wood together. It starts with the base of the product. At
first, the legs are glued and then they are nailed together with the wood on which
the board will rest.
4. Burnishing is the last step and after burnishing is done, the product will be given
some time to dry up.

6
MAXIMUM PRODUCTION CAPACITY:
For production, we have only 4 labors available. As per our research, it takes 24 hours to make
the Sofa Cum Shelf and 12 hours to make the Divan. The month of September will have 26
working days and therefore we have maximum 832 hours in hand in total. If we produce zero
amounts of Divan, maximum number of Sofa Cum Shelf that we can produce is 34. And keeping
the production of Sofa Cum Shelf to be zero, we can produce 69 Divans at maximum.

COSTS AND ITS CLASSIFICATION:

Costs Direct/Indirect Fixed/Variable Taka
2,500/board
Melamine Board Direct Variable (Per Unit 2 board)
1,000/

Kerosene Wood Direct Variable (Per Unit 2 )

900/

(Per Sofa Cum Shelf 5.2

Wood Leg Direct Variable Per Divan 2.6 )

150/hour
(Per Sofa Cum Shelf 24
hours
DL Direct Variable Per Divan 12 hours)
1,500 for Sofa
Burnishing Indirect Variable 750 for Divan
Electricity Bill Indirect Variable 5,000/month
Aica Gum Indirect Variable 400/L

7
Nail & Screw Indirect Variable 120/kg
Shop Rent (Warehouse &
Factory) Indirect Fixed 40,000/month
Dep. Of Machine Indirect Fixed 375/month
Security Guard Indirect Fixed 500/month
Mobile Bill Indirect Fixed 1000/month
Internet Bill Indirect Fixed 1200/month
Misc. Expense Indirect Fixed 2000/month

Table 1

All the information given above was collected from a wood shop from where we brought all our
raw materials. The business card of the shop is given below:

8
Determining the quantity of sales:
Before selecting which product we should concentrate on selling more, we calculated the
contribution margin per direct labor to see which product is more profitable for us. After that
we decided which product to sell more, keeping our minimum production for both the products
to be 18 units.

Calculation of Contribution margin per direct material:

Details Sofa Cum Shelf Divan
Selling Price per unit 19000.00 9000.00
Melamine Board 5000 nil
Kerosene Wood 2000 2000
Wood Leg 4680.0 2340.0
DL 3600 1800
Burnishing 1500 750
Electricity Bill 144 72
Aica Gum 200 100
Nail & Screw 120 60
V.C Per unit 17244 7122
CM per unit 1756 1878
DL per unit 24 12
CM/DL 73.16667 156.5

Notes:

Refer to Table 1 if to understand more about materials needed per product and their
cost.

9
Since Contribution margin per direct labor for the Divan is higher, we will sell more units of
Divan. But how many more units are given in the calculation below:

Details Sofa Divan Total

Minimum Production Requirement 18 18
DL needed per unit 24 12
Total 432 216 648

Details Hours
Direct Labor available 832
Direct Labor used 648
Direct Labor left 184

Therefore, extra Divan that can be produced:

Extra Divan to be produced 184/12 = 16 approx.

Therefore, total units to be produced:

Sofa Divan Total

Units to be produced 18 33 51

Notes:

Per unit of Sofa Cum Shelf and Divan will take 24 hours and 12 hours to produce
consecutively.

10
 We have 4 labors working 8 hours a day. For the month of August, we have 26
working days available so in total, we have 8*4*26, that is, 832 hours available for
production.

SIMPLE COSTING SYSTEM:

Details Sofa Divan Total allocation base
Direct Material:
Melamine Board 90000 0 90000
Kerosene Wood 36000 66000 102000
Direct Labor Hour
Wood Legs 84240 77220 161460
Direct Labor 64800 59400 124200
Allocated MOH 58886.09 53978.91 112865
Total Budgeted Cost 333926.1 256598.9 590525
Number of production 18 33
Budgeted cost per product 18551.45 7775.725
Notes:

Details Sofa Divan

Total Cost in ID Cost pool 112865 112865
Total DLH 124200 124200
ID cost Rate 0.91 0.91
DL 64800 59400
Allocated Indirect cost 58886.09 53978.91

Cost Strategy:
We have decided to allocate our support cost in at the rate of 1.00% of cost of goods sold as it
is very insignificant compared to our cost of goods sold. So we have selected direct method as
our cost allocation strategy for support costs because we do not want to waste much time on
an insignificant cost.

11
CALCULATION OF PRIME COST:
Details sofa Divan Total
Direct Material:
Melamine Board 5000 0
Kerosene Wood 2000 2000
Wood Legs 4680 2340
Direct Labor 3600 1800
Variable MOH:
Burnishing 1500 750
electricity 97 98
Gum 200 100
nail & screw 120 60

Per unit variable cost 17197 7148

Direct Material per product 11680 4340

total Direct Material 210240 143220 353,460.00

Prime cost per units 15280 6140

number of units sold 19000 9000
Total prime cost 244480 184200 428680

12
CALCULATION OF CONVERSION COST:
Details Sofa Divan Total
DL cost 64,800.00 59,400.00
MOH cost 43128 49037
Total conversion cost 107,927.65 108,437.35 216,365.00

CALCULATION OF FULL COST:

Details sofa Divan Total
Variable MOH:
Burnishing 1500 750
electricity 97 98
Gum 200 100
nail & screw 120 60
Fixed Costs MOH
Rent ((24000/353460)
*11680;4340) 793.1 294.7
depreciation 12.4 4.6
Full Cost 2722.46 1307.29 4029.75

13
ACTIVITY BASED COSTING:
Calculation of Activity Rates:
Activity Total Budget Cost Driver Units of Cost Activity
Cost Driver Rate
Burnishing 51750 Direct Material 353460 0.1464
Electricity Bill 5000 Direct Labor 828 6.0386
hours
Aica Gum 6900 Direct Material 353460 0.0195
Nail & Screw 4140 Direct Material 353460 0.0117
Factory Rent 24000 Direct Labor 828 28.9855
hours
Dep. Of Machine 375 Direct Material 353460 0.0011
Warehouse Cost 16000 Direct Labor 828 19.3237
hours
Security Guard 500 Direct Material 353460 0.0014
Mobile Bill 1000 Number of Sales 46 21.7391
Internet Bill 1200 Number of Sales 46 26.0870
Miscellaneous 2000 Direct Material 353460 0.0057
Expense

14
Note: (Reasons behind selecting the cost drivers)

Activity Cost Driver Reason Behind Choosing the driver

Burnishing Direct The more we use the direct material for each product, the more
Material burnishing we need.
Electricity Bill Direct Labor The electricity bill will be depending on the amount of hours spent
hours on cutting by the labors.
Aica Gum Direct The more we use the direct material for each product, the more
Material gum will be consumed.
Nail & Screw Direct The more we use the direct material for each product, the more
Material nails and screw will be used.
Factory Rent Direct Labor The more time spent on producing a final good, the more rent is
hours distributed to it.
Depreciation Direct The cutting machine will only be used for cutting the materials, so
Of Machine Material the depreciation is allocated based on direct material.
Warehouse Direct Labor We wanted to allocate the warehouse cost on each individual
Cost hours product, so we took direct labor hour as its cost driver.
Security Guard Direct We wanted to allocate the security guard's salary on each
Material individual product, so we took direct material as its cost driver.
Mobile Bill Number of As sales are conducted through mobile conversation, the mobile
Sales bill cost is allocated based on number of sales.
Internet Bill Number of As our products are promoted and sold through virtual social
Sales network, the internet bill cost is allocated based on number of
sales.
Miscellaneous Direct We wanted to allocate the miscellaneous on each individual
Expense Material product, so we took direct material as its cost driver.

15
Activity Based Costing:

Details Sofa Divan Total

Direct Material:
Melamine Board 90000 0 90000
Kerosene Wood 36000 66000 102000
Wood Legs 84240 77220 161460
Direct Labor 64800 59400 124200
Manufacturing Overhead:
Burnishing(210240;143220*0.1464) 30779 20967 51746.54
Electricity Bill(432;396*6.0386) 2608.696 2391.304 5000
Aica Gum(210240;143220*0.0195) 4099.680 2792.790 6892.470
Nail & Screw(210240;143220*0.0117) 2459.808 1675.674 4135.482
Factory Rent(432;396*28.9855) 12521.74 11478.26 23999.99
Dep. Of Machine(210240;143220*0.0011) 231.264 157.542 388.806
Security Guard(210240;143220*0.0014) 294.336 200.508 494.844
Warehouse Cost(432;396*19.3237) 8347.838 7652.185 16000.02
Mobile Bill(16;30*21.7391) 347.8256 652.173 999.9986
Internet Bill(16;30*26.0870) 417.392 782.61 1200.002
Miscellaneous Expense (210240;143220*0.0057) 1198.368 816.354 2014.722
Total Budgeted cost 338346.1 252186.8 590532.9
Number of Production 18 33
Budgeted cost per unit 18797 7642.024

16
PRODUCT LINE PROFITABILITY REPORT:
Simple Costing:
Details Sofa Divan Total
Revenue 304000 270000 574000
COGS (291164) (236432) (527595)
Sales Support (1% of COGS) (2911.64) (2364.32) (5275.95)
Operating Income 9924.84 31204.09 41128.93

Operating Income /Revenue 3.265% 11.557% 7.165%

Activity Based Costing:

Details Sofa Divan Total
Revenue 304000 270000 574000
COGS (291164) (236432) (527595)
Security Guard(210240;143220*0.0014) (294.336) (200.508) (494.844)
Mobile Bill(16;30*21.7391) (347.826) (652.173) (999.999)
Internet Bill(16;30*26.0870) (417.392) (782.61) (1200)
Miscellaneous Expense (210240;143220*0.0057) (1198.37) (816.354) (2014.72)
Operating Income 10578.55 31116.76 41695.31

Operating Income /Revenue 3.480% 11.525% 7.264%

PRICING STRATEGY:
We are implementing market skimming pricing strategy for our products. Since we are starters,
we wanted to charge our customers lower price in comparison to our competitors so that we
can easily capture our target market.

17
We are charging tk. 19,000 for the sofa-cum shelf and only tk. 9,000 for the Divan. Our profit
margin on per unit variable cost for Sofa Cum Shelf is only about 10% when we are making
about 26% profit approximately from the Divan.

Through our research, we have found that our competitors are charging much higher prices for
the type of Sofa Cum Shelf and Divans they sell. If you look at the pricing of any other furniture
manufacturer of Bangladesh, you would see that no manufacturer ever sells any kind of Sofa
Cum Shelf or shelf below tk. 20,000. Prices of sofas can go beyond few lacks starting from
something around tk. 30,000. On the other hand, Divans are also very expensive which range
from tk. 15000 to something around tk. 25,000. But our products are very affordable compared
to our competitors.

This is a simple Sofa sold by Otobi for which they charge tk. 42,000.

18
APPROPRIATENESS OF OUR PRICING STRATEGY:

Company Product Price

Sofa 36000
Hatil
Divan 23000
Sofa Cum Shelf 19000
Atlantic Furniture
Divan 9000
Sofa 45000
Akhter Furniture
Divan 30000
Sofa 30000
Nokshi Furniture
Divan 20000

Prices of sofas and divans in the table above of the three competitors; are the prices of their
least priced products that they are selling in their stores. Still, our products are priced
significantly low compared to them.

No other companies sell the exact same products that we do. Our products might be low end
but they have more features, consume less space, and also look very aristocratic. Still, our
products are priced the lowest and so, we think that our pricing has been appropriate.

Master Budgets
REVENUE BUDGET:

Details Sales in units Price/unit Total

Sofa Cum Shelf 16.00 19000.00 304000.00
Divan 30.00 9000.00 270000.00
Total Sales 574000.00

19
PRODUCTION BUDGET:
Details Sofa Cum Shelf Divan
Budgeted unit sales 16 30
add, target ending inventory(10%of sales) 2 3
Total Production requirement 18 33
Less, beginning inventory (0) (0)
Units to be produced 18 33

DIRECT MATERIALS USAGE BUDGET:

Melamine Kerosene wood wood for the

Physical units budget: board ( ) legs ( ) Total

Direct materials to be used:
Melamine board(18*2) 36 boards
Kerosene wood(18*2)+(33*2) 102

Wood for the legs (18* 179.40

5.2)+(33*2.6)
Total 317.40
Cost Budget:
Available beginning inventory 0 0 0
To be purchase:
Melamine board (36*tk.2500) 90,000.00
Kerosene wood (102*tk.1000) 102,000.00
Wood for legs (180*tk.900) 161,460.00
Total 353,460.00

20
 DIRECT MATERIALS PURCHASE BUDGET:

Details Melamine (boards) Kerosene Wood for the Total

wood ( ) legs ( )

Physical Units Budget:

Production requirement of 36 102 180
direct materials
Add, target ending inventory 6 16 27
Total requirement 42 118 207
less, beginning inventory (0) (0) (0)
Total 42 118 207

Cost Budget: Melamine wood Kerosene wood Wood for the

legs
Direct materials to be
purchased
Melamine board (42*tk. 2500) 105,000.00
Kerosene wood (80*tk.1000) 118,000.00
Wood for the legs (207*tk.900) 186,300.00
Total Cost of direct materials 409,300.00
to be purchased

DIRECT LABOR BUDGET:

Details Units DLHs/unit Total DLHs Hourly rate(tk.) Total

Sofa Cum Shelf 18 24 432 150 64,800.00

Divan 33 12 396 150 59,400.00

Total 828 150 124,200.00

21
 MANUFACTURING OVERHEAD BUDGET:

Details Sofa Divan Total

Burnishing unit produced 27000 24750 51,750.00
Electricity Bill unit produced 1,765 3235 5,000.00

Aica Gum unit produced 3,600.00 3300 6,900.00

Nail & Screw unit produced 2160 1980 4,140.00

Factory Rent unit produced 8471 15529 24,000.00

Dep. Of Machine unit produced 132 243 375.00

Total 43128 49037 92,165.00

Notes:

60% As FACTORY RENT & 40% as Warehouse Costs

Budgeted MOH Rate = 111.310386

Budgeted MOH per unit

For Sofa cum Shelf = = 2396

For Divan = = 1486

22
MANUFACTURING COST PER UNIT:
Details Sofa Divan
Direct Material
Melamine Board 5000 0
Kerosene Wood 2000 2000
Wood Legs 4680 2340
Direct Labor 3600 1800
MOH 2,396 1486

Per Unit Manufacturing Cost 17676 7626

ENDING INVENTORY BUDGET:

Details Units Total

Direct Material:
Melamine Board 6 15000
Kerosene Wood 16 16000
Wood Legs 27 24300
Total Direct Material 55300
Finished Goods:
Sofa 2 35352
Divan 3 22878 58230
Total Ending Inventory 113530

23
COST OF GOODS SOLD BUDGET:
Details Total
Beginning Finished Goods Inventory 0 0
Add:
DM used in production 353,460.00
DL 124,200.00
MOH 92,165.00
COGM 569,825.00
Warehouse Rent 16000
Goods Available for sale 585,825.00
Less: Ending Finished goods Inventory (58230)
COGS 527,595

Income Statements:
TRADITIONAL FORMAT INCOME STATEMENT:
Details Total
Revenue 574000
COGS ( 527,595)
Gross Profit 46,405
Expenses:
Security Guard (500)
Mobile Bill (1000)
Internet Bill (1200)
Miscellaneous Expenses (2000)
(4700)
Net Profit 41,705

24
CONTRIBUTION FORMAT INCOME STATEMENT:
CM of Sofa Cum CM of Divan per
Details Total Shelf per unit unit
Total sales 574000 19000 9000
Total variable cost (490,100) (17197) (7148)
CM 83,900 1803 1852
Less : Fixed Cost:
Rent (40,000) (1159.4) (579.7)
Depreciation (375) (12.4) (4.6)
Guard (500) (16.5) (6.1)
Mobile bill (1,000) (29.0) (14.5)
Internet bill (1,200) (34.8) (17.4)
Miscellaneous Expenses (2,000) (66.1) (24.6)
NET PROFIT 38,825 484.8 1,205.15

Notes:

The per unit cost to the individual products were done in the following way:
Expenses Total Cost allocation base Sofa Divan
Rent 40,000 Direct Labor Hours 1159.42 579.71

Depreciation 375 Direct Material 12.59 4.60

Guard 500 Direct Material 16.52 6.14

Mobile bill 1000 Direct Labor 28.99 14.49

Internet bill 1200 Direct labor 34.78 17.39
Misc. expenses 2000 Direct Material 66.09 24.56

25
Break Even & Margin of Safety:
BREAK EVEN CALCULATION:
Details sofa Divan Total
Total fixed cost per unit 1318.2 646.9
Number of units produced 18 33
Total fixed cost 23727.42 21,346.05
Breakeven in units 13.16 11.53 24.69
Breakeven in revenue 250039.37 103,733.50 353772.87

MARGIN OF SAFETY:
Details Sofa Divan Total
Total Sales Revenue 304000 270000
Break Even Revenue 250039.37 103,733.50
Margin of Safety Per 53960.63 166,266.50
Product
Total Margin of Safety 220,227.13

Comment on Riskiness of the product:

The breakeven unit of sofa is 14 units, where its budgeted sales units are 16 units. Therefore,
sofa is considered to be the risky product of our company. The budgeted sales unit of divan is
30 units, and its breakeven unit is approximately 12 units. As a result, divan is considered to be
the least risky product.

The margin of safety of our business is quite high and therefore, even if our actual sales vary
from our budgeted sales by some units, it wouldnt be affecting our business much. Therefore,
our business can be considered less risky.

26
Scenario Analysis:
Calculation of Operating Profit: Scenario 1: (15% increase in direct material):
Sofa cum Shelf Divan Total
Sales 304000 270000 574000
DM 241776 164703
Direct Labor 64800 59400
MOH 43127.64706 49037.35
COGS 349703.6471 273140.4
Warehouse rent 8347.8384 7652.185
Goods Available for sale 358051.4855 280792.5
Less: Ending Finished goods Inventory -35351.96078 -22877.9
COGS 322699.5247 257914.6 (580614.1)
Expenses:
Security Guard 500
Mobile Bill 1000
Internet Bill 1200
Misc. Expense 2000
(4700)
Operating Profit -11314.1

Calculation of Operating Profit: Scenario 2 (5% decrease in demand of product):

Sofa cum Shelf Divan Total
Sales 288800 256500 545300
DM 210240 143220
Direct Labor 64800 59400
MOH 43127.64706 49037.35
COGS 318167.6471 251657.4
Warehouse rent 8347.8384 7652.185
Goods Available for sale 326515.4855 259309.5
Less: Ending Finished goods Inventory -35351.96078 -22877.9
COGS 291163.5247 236431.6 (527595.1)
Expenses:
Security Guard 500
Mobile Bill 1000
Internet Bill 1200
Misc. Expense 2000
(4700)
Operating Profit 13004.88

27
Calculation of Operating Profit: Scenario 3 (10% increase in demand for product):
Sofa cum Shelf Divan Total
Sales 334400 297000 631400
DM 210240 143220
Direct Labor 64800 59400
MOH 43127.64706 49037.35
COGS 318167.6471 251657.4
Warehouse rent 8347.8384 7652.185
Goods Available for sale 326515.4855 259309.5
Less: Ending Finished goods Inventory -35351.96078 -22877.9
COGS 291163.5247 236431.6 (527595.1)
Expenses:
Security GuaRD 500
Mobile Bill 1000
Internet Bill 1200
Misc. Exp 2000
(4700)
Operating Profit 99104.88

28
Summary of the Sensitivity Analysis:
Units Sold Selling Price Direct Material Budgeted
Per Unit Cost Per Unit Operating
Income
What-If Scenario Sofa Divan Sofa Divan Sofa Divan Taka Change
Muster Budget 16 30 19000 9000 11680 4340 41,164.90 0%
Scenario 1 (15% 16 30 19000 9000 13432 4991 (11314.12) (127%)
increase in direct
material)
Scenario 2 (5% 15.2 28.5 19000 9000 11680 4340 13004.88 (68.41
decrease in %)
demand of
product)
Scenario 3 (10% 17.6 33 19000 9000 11680 4340 99104.88 141%
increase in
demand for
product)

29