Strategic Recommendations, Implementation Roadmap, and Peer Review Submission

Assignment Overview

Step 1: Select the Best Costing Method (if applicable)

Objective: Evaluate job order costing, process costing, and activity-based costing (ABC) to determine the most suitable method for the business.

Action:

Comparison: Compare the benefits and limitations of each costing method.

Example: If your business produces custom cakes alongside standard baked goods, consider how ABC could provide detailed insights into cost drivers for each product line.

Recommendation: Justify your recommendation based on the business’s operations and strategic goals.

Example Recommendation: For a bakery offering custom cakes and standard products, ABC might be the best choice as it provides accurate cost allocation for different activities and products.

Step 2: Conduct CVP Analysis

• Objective: Perform a Cost-Volume-Profit (CVP) analysis to understand how changes in costs and sales volume affect profitability.

Action:

Calculate Break-Even Point: Determine the sales volume at which total revenues equal total costs.

• Example: For the bakery, calculate the break-even point considering fixed costs (rent, salaries) and variable costs (ingredients per cake).

Evaluate Pricing Strategies: Assess different pricing strategies and their impact on profitability.

• Example: Analyze how increasing prices for custom cakes might affect sales volume and profitability.

Step 3: Develop Budgeting Plan

Objective: Propose a simple annual budget to help the business manage its finances effectively.

Action:

Estimate Revenues and Expenses: Project monthly revenues and expenses based on historical data and market trends.

Example: Estimate monthly sales revenue from standard products and custom cakes, along with expected expenses like ingredients, labor, rent, utilities, and marketing.

Create Financial Model: Use Excel or similar software to create a detailed financial model with visual representations.

Example: Develop a spreadsheet to track budgeted versus actual performance and identify variances.

Step 4: Create Implementation Plan

Objective: Develop a step-by-step plan for implementing your recommendations, including timelines and resources needed.

Action:

Outline Actionable Steps: Detail the steps necessary to implement your strategic recommendations.

• Example: For the bakery, steps might include negotiating with suppliers, updating pricing strategies, and implementing new budgeting tools.

Assign Responsibilities: Identify key personnel responsible for each step and allocate necessary resources.

Example: Assign the bakery manager to oversee supplier negotiations and staff training.

• Develop Timeline: Create a realistic timeline for each action step, considering dependencies and milestones.

Example: Month 1: Negotiate with suppliers and update pricing strategy; Month 2: Implement new budgeting tools and train staff.

Financial Statement Summary
Income Statement
For the Year Ended December 2022
Revenue
Design Services
Print Services
Logo and Branding packages
Total Revenue
$ 3,000.00
$ 5,000.00
$ 1,000.00
$ 9,000.00
Expenses
Equipment Costs
Printing Costs
Total Direct Costs
$ 3,988.97
$ 5,000.00
$ 8,988.97
Operating Expenses
Software Subscriptions
Marketing and Advertising
Office Supplies
Total Operating Expenses
$ 1,500.00
$
50.00
$ 1,300.00
$ 2,850.00
Net Income
$ 6,150.00
Revenue: SunsetSketch Design generated $9,000 in revenue in 2022.
Net Income: The net income was $6,150 after accounting for all expenses.
Major Expenses: Key expenses include $5,000 for Printing Services and 3,98.97 for equipment.
Critical Thinking
The external factors that may impact SunsetSketch Design include constant relocation
due to military commitments, which can significantly affect the financial structure of
SunsetSketch graphic design in several ways. Frequent moves can lead to higher operational
costs, including temporary housing, moving expenses, and potential storage fees for equipment
and supplies. Relocating can often disrupt established client relationships, leading to the loss of
recurring projects and revenue streams. Building a new client base in each location can take
time.
Different locations may have varying demands for graphic design services, affecting
pricing strategies and revenue consistency. Adapting to local markets can require time and
investment. Frequent moves complicate access to necessary design tools and software, impacting
productivity and increasing costs for temporary solutions.
To mitigate these challenges, SunsetSketch Designs could consider strategies like
building a solid online presence, developing a flexible business model, and leveraging remote
collaboration tools to maintain continuity and financial stability despite frequent moves.
SunsetSketch Design may face several financial risks due to the development of AI. AIgenerated designs can be produced quickly and cheaply, leading clients to expect lower prices
and outing pressure on SunsetSketch Design’s pricing strategy. To remain competitive,
SunsetSketch Designs may need to invest significantly in AI tools and training, which could
strain finances, especially if returns on investment are uncertain. To navigate these risks, Sunset
Sketch Design can focus on highlighting the unique value of human creativity, investing in client
relationships, and exploring how AI can be integrated into their services rather than replacing
them.
Cost Breakdown Analysis
Variable costs for a SunsetSketch Design can fluctuate based on the volume of work and
specific projects. Some common examples of variable costs for SunsetSketch Design are
Software Subscriptions. The price for design software such as Adobe Creative Cloud may vary
depending on the number of licenses or projects. Materials like transfer paper, ink, vinyl, or other
supplies vary based on the volume of work and specific needs for each project. Tracking these
variable costs is essential for managing budgets and ensuring profitability, especially as project
demands change.
Comparison of Costing Methods
Job costing is ideal for freelancers like me or other firms working on one-off projects. It
allows for detailed tracking of hours, materials, and other costs per client.
Processing costs might be used in SunsetSketch Design studio, which frequently
produces similar items, like a series of business cards, where cost can be averaged.
ABC helps SunsetSketch Design because the business offers a variety of services. Its goal
is to understand which are more profitable and identify cost-saving opportunities.
The ABC method provides the most accurate and helpful cost information for
SunsetSketch Design’s decision-making. Activity-based costing (ABC) can provide significant
advantages for a graphic design business like SunsetSketch in several areas. ABS allocates costs
based on actual activities rather than average, giving SunsetSketch a clearer picture of where
resources are being spent. This means SunsetSketch can more accurately assess project
profitability.
Key Findings
Strength
As of December 2024, SunsetSketch Design had a substantial revenue stream. Many
customers contact SunsetSketch for various reasons, such as rebranding. The company’s
reputation for delivering high-quality, creative designs has set It apart from competitors, allowing
it to command higher prices and attract more clients.
Weakness
Relocation can present several weaknesses for SunsetSketch that could impact its
operations. SunsetSketch established a solid local presence in the United States Virgin Islands.
Relocating caused a loss of recognition within that demographic. Building a new reputation in a
different area can take time and effort.
Opportunities
SunsetSketch Design can capitalize on expanding its digital footprint through a
professional website and active social media engagement. This can attract clients beyond the
local market, tapping into a global audience. By leveraging this opportunity, Sunset Sketch can
continue to grow and thrive, regardless of the challenges posed by relocation.
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Opportunity for Managerial Accounting Consultation
Tara B Robinson
College of Business, Texas A&M University – Central Texas
ACCT 5303-115: Managerial Accounting
Dr. Fulmore
September 5, 2024
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SunsetSketch Design
Business Introduction
Where creativity meets innovation, SunsetSketch Design is a small business which
specializes in crafting visually stunning and strategically impactful designs that brings your
brand’s vision to life. Founded in 2017, SunsetSketch Design is a single owner operation with a
passion for graphic design and pushing the boundaries for design. Our mission is to transform
your ideas into compelling visual narratives that captivate audiences and drive engagement. We
believe that great design is not just about aesthetics but also about creating meaningful
connections between brands and their audience.
At SunsetSketch Design, a variety of services are tailored to meet unique needs.
SunsetSketch Design build and refine brands identities through logo design, brand guidelines and
visual elements that resonate with the customer. From brochures and business cards to posters
and packaging, this company creates materials that stand out and communicate your message
effectively. The talented illustrator produces custom illustrations that add a unique and personal
touch to your projects, cars and celebration themes.
SunsetSketch Design Business Structure
Number of Employees: 1
Industry: Graphic Design
Primary Products: Brochures, Business cards, Logos and Printing services
Challenges: Pricing errors and non-uniformed cash flows
There are times that SunsetSketch Design is overflowing with other projects and there are
periods where one project must be focused on. This affects the cash flow; thus, it becomes
difficult to manage their budget and overall financial needs. There are also operational issues that
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this business goes through and they include finding correct market price charges for services that
can properly compensate for the amount of creativity done while at the same time catering for
operational expenses. These challenges present a good implication to apply managerial
accounting principle to support the stability of the financial and profitability.
Justification for Choice
My justification for this choice of SunsetSketch Design was informed by the
distinctiveness of the company’s services and the managerial accounting issues that it
encounters. The first step I did was to look for potential companies that may require use of
managerial accounting by checking local directories and community resources (Klychova et al.,
2014).. I targeted SMEs that offered unique products and services but also SMEs that faced
either financial or managerial problems.
Recommendation
During the assessment, SunsetSketch Design was noted for being creative and very much
in need of some form of managerial upgrade especially in areas of the likes of cost and price.
This business was chosen because of the project-based organization with non-uniform cash flows
and prices that are prone to errors. SunsetSketch Designs is the type of business that would
require this consultation. This project will involve applying the principles of managerial
accounting, including budgetary control, cost management, and pricing evaluation, to enhance
SunsetSketch Design’s profitability and organizational performance (Klychova et al., 2014).
As mentioned earlier, the business aimed at creating apparel designs for other brands,
thus implying that helping this business grow will also help other businesses within the
community grow, contributing to sustained economic growth.
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References
Klychova, G. S., Faskhutdinova, M. S., & Sadrieva, E. R. (2014). Budget Efficiency for Cost
Control Purposes in Management Accounting System. Mediterranean Journal of Social
Sciences, 5(24), 79-83. doi:10.5901/mjss.2014.v5n24p79
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