Investor Report for Lulu Company Ltd.

Investor Report for Lulu Company Ltd.
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Southern New Hampshire University
Introduction
Lulu Company Ltd. prides itself on producing high-quality textile goods and delivering services to our esteemed customers. The company seized the opportunity created by the Covid-19 pandemic; the demand for customized tailored products shoots through the roof because the people spend most of their time at home. Given that individual movement and interaction of people are still limited and if not, people are still afraid to be in public places, the company offers after-sell services convenient to our esteemed customers.
Lulu Company Ltd. aims to be the local go-to tailored product provider, with a step-by-step production opportunity for the client to see how their products are manufactured. In five years, the company will be fully mechanized and automated when delivering finished goods to the customers; drones will be deployed to provide textile goods at the customer’s door. The turnaround time from placing an order to delivering should be under 30 minutes. Customer satisfaction, convenience, and feedback will always be the core of the business, and the management will be working on improving them; to offer cutting-edge products and services.
Purpose
The report aims to outsource stakeholders to help expand and help Lulu Company Ltd. provide quality services to its customers. The company’s competitive advantage against its rivals is the door-to-door delivery and a short turnaround time from placement to delivery. However, leveraging this advantage requires complete mechanization and automation of processes like delivering products via drones instead of relying on courier services and people, which takes longer than expected. Therefore, potential investors should look at this investment opportunity because we will be the next big thing in Texas in the next couple of years, and we will be expanding to other states.
The company’s financial health is good, but the expected and projected financial information places the company on a trajectory to take off to new heights. The return on investment is high and guaranteed, as demonstrated below by the financial statements. In addition, the recent audits indicate the company’s potential, and with the right amount of capital from investors, Lulu Company Ltd. will be scaling new heights. Therefore, as you go through this report, pay extra attention to the financial and managerial statements that will prove the company’s potential.
Methods and Approach
The profitability of any organization depends mainly on the internal analysis of financial data to guide the way forward for the company. The management uses the managerial accounting information to gauge the company’s performance and help boost investors’ confidence through the financial statements. Management accounting usually flies under the radar because its data is meant for internal use, and for investors’ service, it is not made available to the public. Lulu Company Ltd.’s internal financial reports aids in the decision-making process for the immediate, medium, and long-term plans.
The importance of management accounting is significant to the company because it gives a critical edge on the analysis of the relevant costs, boosts investors’ confidence, defines the budgets, controlling the company, and planning for the future (Askarany, 2011). Sound decision making and investment for the managers and investments are pegged on the internal financial reports made available to them through this report. The methods in these reports are margin analysis, constraint analysis, capital budgeting, inventory valuation and product costing, trend analysis, and forecasting. The fundamental and cornerstone of managerial accounting of Lulu Company Ltd. is a margin analysis to calculate the breakeven point used to determine the optimal price mix for the company’s product and the accrual benefits of optimizing production.
Constraint analysis
The production process is faced with challenges and shortcomings that need to be addressed and ensure optimum production is achieved. Constraint analysis pinpoints the bottlenecks and deficiencies created by the blockages in the production process and how they impact the firm’s ability to generate revenues and profits (Braun, 2013). Through constraint analysis, Lulu Company Ltd. can manage emerging issues arising from the production process and help management address them on time before harming the organization.
Capital Budgeting
The amount and level of capital investments are critical for the organization; therefore, capital budgeting enables the management to have a ball-park figure of the level of capital investment needed when outsourcing investors (Braun, 2013). In addition, the use of tools like Net Present Value (NPV) and Internal Rate of Return (IRR) gives the management and investors insights into the amount of capital required.
Inventory valuation and product costing
The analysis of overhead and direct costs related to the cost of goods sold by Lulu Company Ltd. gives an overview of the cost incurred in the production process of the textile goods to finished products ready to be sold (Wong, 2018). The process entails precise calculation and allocation of charges incurred throughout the production line. Therefore, identifying patterns and trends in the new production line is critical for recognizing the anticipated variances from unanticipated ones. Furthermore, the designs and directions can be used to cost a product to enable the management to develop an excellent strategic costing system that will boost company profit margins.
The techniques used by the company follow the international standards of accounting, i.e., Generally Accepted Accounting Practice (GAAP) and the AICPA. The financial data presented is valid and legit both to the US-based and international-based investors. Investors stationed outside of the United States have no reason to worry because the company’s expansion and operation are expected to extend to new markets. The international investors will help the company achieve its goals.
The costing strategy implemented by the organization aims at achieving a breakeven costing approach. The company’s well-being and staying afloat are critical for investors to inject in the capital; thus, breakeven costing of the leashes, collars, and harnesses will enable the company to recover the production costs. Breakeven costing gives the management the freedom to choose the price above profit margins after securing expenses (Wong, 2018). The method is appropriate for the company; the demand and supply of the products and competitors’ rivals can go up or down but not below the breakeven price. In a nutshell, the costing method is the right way for the company to achieve its vision.
Financial Strategy
Lulu Company Ltd. seeks to be the dominant force in the textile industry by offering quality products to esteemed customers. The turnaround time from placement of orders to delivering them is remarkable and commendable; however, the under 30 minutes for delivery time is what the company is working towards achieving. The breakeven costing strategy is used as a fundamental pricing system before any other because it allows the company to recover operating costs and enables the management to determine how quickly the firm can break even and start to make profits (Lee, 2020). That being said, the administration has the freedom of setting the price based on other factors like rivals’ product prices and the forces of the markets (demand and supply). Job order costing complements the breakeven pricing system because the operation cost is already determined, and whatever the final system used will ensure the point of zero profits is covered.
Costing System
The job order costing system used in Lulu Company Ltd. covers multiple units of distinctive products (i.e., collars, leashes, and harnesses). The job costing system spreadsheets separates the cost associated with each produced product. The cost system is prepared in Microsoft Excel spreadsheets which can be transferred to Google Sheets for ease of access to our potential investors staying abroad. Each spreadsheet will have categories to trace the cost, either direct material, labor, and overhead (Lee, 2020). Also, the variable expenses will be factored into the costing system to allow a true reflection of what the final price should be.
The job order costing method gives an insight into the proportional costs to the number of finished products produced. Another advantage of the process is that it provides the investors with the profit margin per item and sees which item is high on demand and needs improvement. The projected firm’s revenue and current revenue can be compared in this method and optimal production or pricing to capitalize on any advantage that might present itself (Wong, 2018). However, compared to other methods, factors like change in demand, seasonality, geopolitics, and availability of materials are sometimes beyond the control of the management; thus, the technique is vulnerable in this aspect like other costing methods.
Job order costing is easy to use and implement in the business, unlike the activity-based costing and activity-based management approach, which is expensive and hard to implement. Targeting costing would be preferred as the costing system, but the company has not customized the products to a specific market (Idris DM, 2019). However, job order costing and benchmarking systems go hand in hand because the firm can study and see the rival or competitor costing system versus the returns and revenue generated.
Selling Prices
Lulu Company Ltd. products retails as follows:
Collars = $24
Leashes = $22
Harnesses = $35
The prices for each item sold by the company need to be above the breakeven price, which allows the company to profit. For instance, each item has its price because they have different variable costs per unit resulting in the difference. The assumption made by CVP is that selling price, fixed and variable costs per unit are constant, which is not always true. However, it’s good to make projections to help managers know what to expect.
Contribution Margin
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lulu Company Ltd.
Contribution Margin Analysis





 

 

 

 

 

 

 

 

 





 

 

 

COLLARS


LEASHES


HARNESSES

 

 





 

 

Sales Price per Unit

$ 24.00


$ 22.00


$ 35.00

 

Variable Cost per Unit

9.10


12.10


14.60

 

 





 

 

Contribution Margin

$ 14.90


$ 9.90


$ 20.40

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The cost volume profit analysis provides insight on how to determine the contribution margin per unit. The margin should be above the breakeven price. Therefore, the margin contributed by the items above is nothing but returns on the investment. The cost volume profit analysis allows the managers to determine the quantity produced and the price to sell the p...