BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS-SLP4
Don-Don
MOD1SLPACC.pptTrident University International
Donica Jordan-Andrade
Module1 SLP: Accounting Cost Systems and Cost Behavior
ACC501: Accounting for Decision Making
Professor: Dr. Ron Spicer
September 26, 2020
Morrlum Water Proof flooring materials
ACCOUNTING COST SYSTEMS AND COST BEHAVIOR
Product Description
Morrlum Water Proof flooring materials
- Morrlum is an institution intending to launch the sale and production of water proof flooring materials in USA.
- The flooring industry is one that evolves as fast as the fashion industry. The population in America appreciates quality flooring materials based on uniqueness of such aspects as beauty, waterproof floors, pet and children friendly floors as well as quietness of floors.
- Waterproof flooring materials occur in both vinyl planks and wood plank laminates. Various brands are available under this product line including and not limited: to blue ridge vinyl plank floors, shady pine vinyl planks and Tudor oak vinyl floors.
- This new product seeks to serve clients who accommodate children and pets, this is because of their ease of cleaning, soft underfoot, durability and water resistivity.
- Water proof flooring materials can fit in any room of a house including kitchen, bathrooms etc.
- The products have layers including the scratch resistive layer, decorative layer, hydraulic layer and the ultra quiet pad making them ideal for sound dampening.
Cost Estimates & Pricing Suggestions
The following is cost and pricing model estimates for Morrlum at the start of the year 2020.
Fixed costs
Renting expenses - $27,000
Licensing costs - $4000
insurance - $50,000
Other costs - $3000
Variable costs
- Delivery costs - $8940
- Labour - $20,000
- Commissions - $3570
- Raw materials - $130,000
- Other variable costs - $2360
Total costs = $248, 870
The sales for flooring materials are based on square feet and the suggested price range for the waterproof floors at Morrlum is between $2.20 - $ 3.80. The average pricing is $3 meaning the break even point requires sales of about 82, 956 square feet.
Approach To Determine Pricing
The price range is based on various factors including set target sales, break even point and competitors pricing considerations. The following is graphical representation of the target earnings expected for 3 years at Morrlum.
- Competitor such as Floors Inc.
pricings ranges of
between $2.5- $5.
- The target sales for year 2020
Projected to be 90,000 square
Feet.
- The pricing model for Morrlum
Waterproof flooring materials
agrees to both competition range
and break even point considerations.
Rationale For Pricing Approach
Morrlum is a new business in the flooring industry hence the need to:
- Check on competitor pricing models to ensure they match or are discounted by reasonable margins.
- Focus on target sales to ensure break even point is reached and consequently market the products of the new venture.
- Monitor the price vs market acceptance conditions, this is particularly important to ensure start momentum is not lost via deviations from the set projections of earnings in the negative territory.
References
Hoeberichts, M., & Stokman, A. (2005). Pricing behaviour of Dutch companies: main results from a survey. De Nederlandsche Bank.
Tikul, N. (2014). Environmental and Economic of Flooring Building Materials. Applied Environmental Research, 36(2), 47-59.
