Activity Description – CREATE AN ECONOMIC AND MANAGEMENT ACOUNTING PLAN: Assume

Question

Activity Description – CREATE AN ECONOMIC AND MANAGEMENT ACOUNTING PLAN:

Assume that you have just been hired as a financial consultant to a startup company that plans to introduce a new beverage to the soft drink market. Your company’s product is advertised as a healthier alternative to soda and other artificially flavored drinks. The all-natural sparkling beverage has only 25 calories, 5 grams of sugar, no chemicals or preservatives, and comes in four fruit flavors: orange, pineapple, apple and grape. Two years ago the product was introduced in Florida. A phenomenal growth in sales since its introduction demonstrates that the product and its marketing possess tremendous potential. Accordingly, the company wants to explore possibly expanding sales of the product to the rest of the U.S. market. Although the company has been highly profitable, the management group has little to no financial experience. Most decisions to date have been made on the basis of ‘does it feel right’ as opposed to rigorous, data based financial analysis. The company has no system of financial oversight and the managers of the company have a limited understanding of sound management accounting practices. You have been asked to provide the company with a general analysis of this proposed project. Your specific task is to produce a report discussing the following key aspects of this expansion project: • A microeconomic analysis of the current state of the soft drink market in the U.S. and how any recent developing trends may affect the demand for this product. • A macroeconomic analysis of the state of the U.S. economy and the impact this may have on the demand for this new product. • A list of key management accounting practices that the company must put in place to support their planned expansion. Each item you list must be fully explained to the management group so they understand how and why the practice is necessary to manage the growth that will come with expansion of the product to different states. Be sure to consider the fact that the company will need outside financing and may even consider the possibility of going public in order to sell its stock on an exchange.

Explanation / Answer

The company has showed tremendous growth in the past two years which makes it a good idea to launch the products in other parts of the country too .But since the company managers do not have ample experience in financial planning and accounting a detailed market study will be needed here.

To ensure enough product sale and demand , a trend analysis should be used to study about exisiting competitiors and their market share . Consumer demand differs in places which makes it difficult to expect uniform demand in all parts of the country. THus consumer demand study is done to understand what people want and if they will be willing to buy new product at given prices. If there already are enough competitors and similar drinks in the market promotional plans and pricing plans will have to be changed accordingly to make the product more attractive for these existing consumers.

Economy also plays an important in role in decision making , if the county suffers a downturn the aggregate demand will be impacted and people might not be interested in taking up new products and will stick only to their necesstities. Further to this , if the company is planning to expand without sufficient funds they would need to make investment demand which is affected if market interest rates are very high . Also in a sluggish financial markets they might got investors easily , as they would be reluctant in investing with a newly launched company. Thus, the decision has to be derived from overall macroeconomic growth and performance of the country.

The management accounting will carry out all the necessary financial analysis for an effective decision making.The reports will be internally used by the managers including budget , capital need, information about competitiors and market position.The decisions will be based upon these factors because without understanding market scenario it will not be meanignful for a firm to start its operations.This type of analysis will further help in planning and forecasting for all future decisions to be taken by the firm. Thus , the management accounting will help in budget planning which will then help managers to effectively allocate resources as per the need of the firm.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.