Analytical Essay Sample on H&M

Introduction

The company in consideration is the H & M group company, which deals with the design and manufacturing of clothes (Arrigo 2018, p.121). The company is located in Muscat, Oman but has other branches all over the world. The company loves fashion and design, with their unique brands making them one of the world's leading fashion companies. Over the years, the company has established a global store network with 4351 stores in 64markets thus acquiring a robust digital presence. Brands offered by H & M share a passion for fashion and quality, a drive to give customers the best value for money and ambition to dress customers sustainably. The company's goal is for 100% of the cotton to come from sustainable sources by the year 2020, which includes cotton that is organic, recycled or certified by the Better Cotton Initiative (BCI) (Cherny 2016, p.123). The goal can be projected using a bar chart (See Appendix A)

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Cost of sales is one of the accounting tools which give the accumulated total used in creating a product or offering a service that has been issued out; a term regularly used by retailers. Manufacturers are more likely to use the name "cost of goods sold." The cost of sales line item appears near the top of the income statement, as a subtraction from net sales (Horngren 2009). The various cost of sales fall under sub-categories of direct materials, direct labor and also include the cost of commissions associated with a sale. Cost of sales is a vital part of analyzing performance metrics of a company since it measures the ability of an entity to design, source and manufacture goods at a reasonable cost (Garg 2003, p.30). It should be noted that general and administrative expenses, as well as costs incurred by the sales and marketing department, are not included in computing the cost of sales. Based on the data obtained from the company's 2016 Annual report (See Appendices B & C), calculations regarding the cost of sales, General and administrative expenses and net income can be done as follows:

Cost of sales as a percentage of sales

Given that the cost of sales is 86, 090 and the sales are 222, 865, then the cost of sales as a percentage of sales can be computed as follows:

86,090222,865100%=38.63%General and administrative expenses as a percentage of sales

Given that the administrative expenses are 6, 625 and the sales are 222, 865, then the general and administrative expenses as a percentage of sales can be computed as follows:

6, 625222, 865100%=2.97%Net income as a percentage of sales

Given that the net income is 19, 324 and the sales are 222, 865, the net income as a percentage of sales can be expressed as shown below:

19, 324222, 865100%=8.67%For the 2017 Annual report, data (See Appendices D & E) was obtained, and the following computations are done:

Cost of sales as a percentage of sales

Given that the cost of sales is 91, 914 and the sales are 231, 771, then the cost of sales as a percentage of sales can be computed as follows:

91, 914231, 771100%=39.66%General and administrative expenses as a percentage of sales

Given that the administrative expenses are 7, 094 and the sales are 231, 771, then the general and administrative expenses as a percentage of sales can be computed as follows:

7, 094231, 771100%=3.06%Net income as a percentage of sales

Given that the net income is 14, 607 and the sales are 231, 771, the net income as a percentage of sales can be expressed as shown below:

14, 607 231, 771100%=6.30%Operation costing

Operation costing combines characteristics of both job-order and process costing, and thus a similar term for this is "hybrid costing system." Job order costing refers to the method of assigning costs to a specific unit or product (Hansen 2007). Here, the overall concept is that the product or service is a one-time event. Also, costs are assigned to each product/service depending on the parameters of the job. On the other hand, process costing refers to the method of assigning costs for a mass quantity of a product or service (Hansen 2007). Here, the concept is that a company makes many numbers of a product and sells that exactly similar product to everyone. Furthermore, operation costing is used in either of the following situations:

• A product initially has identical processing for a group of products, and is later finished using more product-specific procedures; or
• A product initially uses different raw materials and is then finished using a common process that is the same for a group of products (Lucey 2002).
• H&M deals with the production of clothes and a flow chart of the production process can be illustrated as seen in Appendix F.

Almost all the processes involved incorporating the aspect of process costing except for the last stages where customer specification becomes necessary. The steps of preparing and dying of the staple, tow, and silver, to the stage of pre-treatment of wool, are done in bulk, and therefore the costs are done as per process costing. Beyond the pre-treatment of cotton, wool and silk are steps such as piece dyeing and printing which usually are carried out as per the customers' specifications. At this stage, the clients propose the colors they prefer for their clothes and these come with a different cost as it would involve additional labor. The wet or dry finishing stage of cotton and wool can also be under job order costing because some customers prefer a different quality of their clothes. With such demands, then it means a different cost has to be assigned for such a process. H&M Clothes Company incorporates operation costing because all products are assigned costs depending on their production procedures; whether in mass production or special attention is given to the specifications of the clients.

Capital Budgets

The Burke Museum project is one in which requests were made for the reappropriation of 2015- 17 funds and $24 million in the 2017-19 state funds to complete the construction of a New burke museum adjacent to the existing facility located on the University of Washington campus. Construction commenced in 2015-17 and is on schedule to be completed in the 2017-19 biennium. Initially conceived as a renovation project, the proposed project was to provide a new, larger building to address the limitations and shortcomings of the existing building which include the lack of adequate climate controls; meeting facilities; public elevator; storage space for collections and exhibiting programs; exhibit space; workspace; or adequate, accessible amenities (He 2017).

From the capital budget obtained from the university's accounting office (See Appendix G), the project's total cost was estimated to be $75 million where $24 million was intended for the construction phase. The funding sources for the project include the Washington state, private donors, the University of Washington, and the local public art commissions. The cost of the project managed to stay within the computed budget because all appreciation factors were accounted for and also, the value of the miscellaneous was incorporated as "other costs total" in the budget.

A review of the calculations was done and found to be correct. Methods of coming up with that particular capital budget were accurate and can be concluded to be agreeable since all possible expenditures or investments that are significant were evaluated and accounted for. The university used the following procedures in evaluating the capital budget:

• Identification of investment proposals
• Screening the proposals
• Evaluation of various proposals
• Fixing priorities
• Final approval and preparation of the capital budget
• Implementing the proposal
• Performance review

References

Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.

Garg, A., Ghosh, D., Hudick, J. and Nowacki, C., 2003. Roles and practices in management accounting today. Strategic Finance, 85(1), p.30.

Lucey, T., 2002. Costing. Cengage Learning EMEA.

He, S., 2017. Responding to Funding Cuts as a Government-funded Museum (Doctoral dissertation).

Hansen, D., Mowen, M. and Guan, L., 2007. Cost management: accounting and control. Cengage Learning.

Arrigo, E., 2018. The key role of retail stores in fast fashion companies: The H&M case study. In Contemporary Case Studies on Fashion Production, Marketing and Operations (pp. 121-137). Springer, Singapore.

Cherny-Scanlon, X. and Agnes, K., 2016. Time for a Responsible Fashion Council? In Green Fashion (pp. 123-150). Springer, Singapore.