your friend Julian has come up to you for financial advice. He has a small business manufacturing and selling pizza ovens. He explains that he has some basic Financial Accounting knowledge, however, as his business is at its infant stage in a manufacturing industry, he requires your help in guiding him through management accounting functions.
Write a report to Julian explaining the differenece between Financial Accounting and Management Accounting . His concern is that the business is at risk as it is not perfoming well as compared to his competitors. He wants to know at what level he should be producing in order to break even. Also there are three models that he carries and of lare he has noticed that one of the models is slacking in sales, hardly enough to cover his labours and materials cost.
His equipment is rather old as he purchased them second hand. He wonders if he need to replace them. Julian is also seriously considering if it would be better for him to import a similar product from Italy, instead of producing it locally as he is paying heavy royalty charges to franchisor.
Labour costs are on the rise and cash flow has been a problem in the recent months. He needs your advise on budgetary planning and control as well.
Through your understanding on Management accounting, how would you evaluate these issues to Julian using concepts such as Marginal Costing, Relevant Costing, Payback, NPV, IRR, budgetary planning and control.
Lastly, how will you go about helping him to price these products as it is relatively new in the market?
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