Answer To: UCBS7037 Financial Management Assessment University of Cumbria and Robert Kennedy College General...
Prince answered on Aug 10 2022
2
Report on Financial Assessment of Pearls Business
Student Name
08th Aug 2022
Table of Contents:
Executive Summary 3
Assumptions 4
Break-even analysis 6
Profit & Loss statement 8
Balance Sheet 10
Analysis of Cash flow statement 11
Funds requirement for Venture 13
Sensitivity Analysis (Worst) 14
Conclusions and Recommendations 15
Critical Reflection 15
References 18
Executive Summary
In this case study, we'll talk about Felix's new venture, assuming he has a retirement fund that will serve as recompense for his time spent working in the chocolate factory. Felix can therefore invest with in new pearl business using this capital. However, every commercial activity requires funding. Felix needs to develop strategies and do the necessary activities to develop into a responsible and successful pearl merchant. Felix has to give the pearl business a name and register it under the Companies Act. By doing this, the business will be able to legally trade goods and services with both suppliers and clients without running the risk of getting into trouble. Felix will have to pay certain costs associated with registering the business and obtaining legal status for it. In addition, there will be costs associated with buying the pearls from the providers. The cost of importing pearls from Tahiti to Zurich will also be incurred. There will be expenses associated with buying pearls, and Felix will also incur costs for expert quality inspection of the pearls. He needs to make a list of every expense mentioned above that must be made when the business is just starting out. Felix also needs to make sure that the pearls' quality matches their purchase price. Felix must complete all of these jobs impartially and with adequate backup plans that take into account the price swings in the pearl sector. According to estimates, it was found that Felix's business was successful and may produce significant profits over the long term. According to the budgeted cash flow statement, it was found that Felix's company can start producing positive cash flows in the second month. As a new company, the first month will see losses, but as it grows and generates positive cash flow over time, this will change. On the other hand, he can also put money into his friend's company, Orohena Pearl. As a result, he must contribute only 884995 CHF in this situation rather than the whole 900000 CHF retirement fund.
Main Report
Assumptions:
Particular
Amount
Unit of Measure
Retirement Payment
900,000.00
CHF
Exchange Rate CHF/CFP Francs
110.52
CFP Franc
in Tahiti Per Pearl Price in
14,800.00
XPF per pearl
Saad receives a discount
35.00%
Freight via air (including insurance)
1,800.00
XPF per pearl
Per-Pearl Weight
6.40
KG
Each order's overall weight
1,600.00
Courier Cost
Economy FedEx (3 Weeks)
12,569.78
CHF per 1600 KG
Cost of Special Safes and Racking
5,700.00
CHF
Renting a small commercial space
850.00
CHF per month
Security dowry
2,550.00
Alarm System Price
5,500.00
CHF
Cost of alarm system surveillance
100.00
CHF per month
Cost of developing a website
8,000.00
CHF
Monthly Estimated Demand
250.00
Demand in the first month (assuming January)
30.00
Demand is increasing each month by a difference between 250 and 30 pearls over an 11-month period.
Per-pearl selling price
270.00
CHF
Within Switzerland, packaging and shipping
15.00
CHF per pearl
Fees from the credit card company
1.20%
per sale
Pay for two students
3,600.00
CHF each
Limit of Borrowing
75,000.00
CHF at 6%
Gross Tax Rate
40.00%
in arrears
Cash Flow Available Investment
4.00%
per annum
To calculate depreciation charges for NCAs, the straight-line depreciation technique will be employed.
Contract with Paula:
Demand of Pendants
30.00
per month
The cost per pendant
170.00
CHF per pendant
Cost of Drill and Jig
550.00
CHF
Chains and clasps made of silver
25.00
CHF per set
Box of Presentation
7.50
CHF per pendant
Pay for Pendant Delivery Assistants
350.00
CHF per month
Break-even analysis:
Table 4: BREAK EVEN ANALYSIS
Selling price per pearl
270.00
Variable Costs per Pearl
Purchase Price
87.04
Air Freight (including insurance)
16.29
Packaging and Shipping within Switzerland
15.00
Credit Card Company Charges
3.24
Presentation Box
7.50
Total VC per pearl
129.07
Contribution margin per unit
140.93
CM %
52.20%
Fixed Costs
FedEx Economy Fixed Costs (3 Weeks)
12,570.00
Rent for a Small Commercial Room
850.00
Cost of Alarm System Monitoring
100.00
The pay of two students
3,600.00
Pay for Pendant Delivery Assistants
350.00
Costs Fixed Overall
17,470
Pearls' Breakeven Point (per month)
124.00
Breakeven Profit for Pearls (per month)
33,480.00
Pearls' Breakeven Point (Annual)
1,488.00
Breakeven Profit for Pearls (Annual)
401,760.00
According to Felix's information, it appears like he will be managing two business operations concurrently. The two aspects of this will be the pearl business as well as the sale of pendants to his buddy Paula, a jeweller. As breakeven analysis is the common approach of problem appraisal, two independent break-even analyses were developed for this purpose (W. Ken Farr and Wesley N. Musser, 1984).
The variable cost of the pearl in this instance is 42 CHF per unit and includes air freight (including insurance), packaging, and shipping costs inside Switzerland, credit card company fees, and presentation boxes. A product's contribution to the company's overall profit is determined by the contribution margin per unit. Sales minus Variable Costs in this instance equals Contribution Margin. There are 17470 CHF in total fixed costs. By dividing Total fixed expenses by Contribution margin per unit, the break-even points for pearls are calculated. The sale price per pearl multiplied by the breakeven point in pearls each month yields 20790 as the breakeven revenue. The breakeven in pearl annually is 920 units, and the income from pearls annually will be 249,480.00 CHF if Felix's pearl business runs this way.
Profit & Loss statement:
The P/L account contains a variety of expenses that are presumed to be the most pertinent to Felix's business operations. The tax rate is 40% and is in accordance with the rate in effect in Switzerland. According to the P/L A/c, the demand for pearls would rise quickly in the first few months, reaching 66.67 percent from February onward, before gradually declining to 8.70 percent in December. We also took into account the depreciation and amortisation amounts, which are included in operating expenses and total 150 CHF and 1019 CHF, respectively, when evaluating the P/L A/c. It is anticipated that Felix's company will steadily increase its monthly net income from just -1874 CHF in Jan to 10841 CHF in Dec. As a result, the company's overall net income would be 58296 CHF. The quantity of net income is anticipated to grow Felix's business annually.
Table 2: Profit and Loss Statement
January
February
March
April
May
June
July
August
September
October
November
December
Year 1 (2022)
Demand of Pearls
30
50
70
90
110
130
150
170
190
210
230
250
1,680
Selling Price per Pearl
270
270
270
270
270
270
270
270
270
270
270
270
270
Sales Revenue
8,100
13,500
18,900
24,300
29,700
35,100
40,500
45,900
51,300
56,700
62,100
67,500
453,600
Other Revenue (Pendants)
5,100
5,100
5,100
5,100
5,100
5,100
5,100
5,100
5,100
5,100
5,100
5,100
61,200
Total Revenue
13,200
18,600
24,000
29,400
34,800
40,200
45,600
51,000
56,400
61,800
67,200
72,600
514,800
COGs
2,611
4,352
6,093
7,834
9,575
11,316
13,056
14,797
16,538
18,279
20,020
21,761
146,232
Gross Profit
10,589
14,248
17,907
21,566
25,225
28,884
32,544
36,203
39,862
43,521
47,180
50,839
368,568
Less: Operating Expenses
Air Freight (including insurance)
489
815
1,140
1,466
1,792
2,118
2,444
2,769
3,095
3,421
3,747
4,073
27,367
Courier...