Application of financial and break-even analysis to a scenario Essay

Fiscal Plan and Break-Even Analysis

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Break-Even Analysis

Break Down Computation for 6 Calendar months Ended June 2013

In Dollars

Unit of measurements

Per Unit

In Percentage

Gross saless ( invoiced )

$ 562,500.00

8500

$ 66.18*

100 %

Variable Cost

$ 84,170.00

8500

$ 9.90

14.96 %

Contribution Margin

$ 478,330.00

8500

$ 56.28

85.04 %

Fixed Cost

$ 35,363.00

Net Income

$ 442,967.00

In calculation of the Break-Even Point, there are two results that require analysis. These are the Break-Even Gross saless in Unit of measurements or Volume and Break-Even Gross saless in Dollars. In Figure 1, the sums listed are derived from Net income and Loss Forecast subdivision of the excel file. All sums are prognosiss from January to June of 2013 including estimated set-up costs.

Figure 1. Interrupt Down Computation for 6 Calendar months Ended June

*Sales Price per Unit= Original Price x ( 100 % + Mark-Up Percentage )

= $ 57.55 x 1.15

=$ 66.18

Fixed Costss

Wages and rewards

$ 18,000.00

Repairs and care

$ 240.00

Ad

$ 1,200.00

Marketing study

$ 300.00

Rent

$ 1,800.00

Design and testing

$ 400.00

Equipment hire/lease

$ 5,000.00

Patents

$ 150.00

Depreciation

$ 100.00

Copyright enrollment

$ 120.00

Electricity and gas

$ 1,000.00

Recruitment and choice

$ 200.00

Insurance

$ 1,200.00

Water measures

$ 200.00

Legal fees

$ 300.00

Construction

$ 3,000.00

Transport/courier costs

$ 540.00

Office set up

$ 1,000.00

Postage, telephone and facsimile

$ 190.00

Distribution

$ 264.00

Stationery

$ 159.00

Entire Fixed Cost

$ 35,363.00

Figure 2. Composition of Entire Fixed Costss

The company incurred entire fixed costs of $ 35,363.00 for its iScent Alarm Clocks from January to June of 2013. Variable cost is $ 9.9 per unit which is 14.96 % of the gross revenues monetary value per unit. The iScent Alarm Clock has an original monetary value of $ 57.55. Given the proposed mark-up monetary value of 15 % , the new monetary value of iScent Alarm Clock is $ 66.18 per unit. Hence, the company will sell an iScent Alarm Clock for $ 57.55 for retail merchants and jobbers while $ 66.18 for every individual purchase of clients. Furthermore, the mark-up per centum of 15 % can cover unforeseen or unanticipated product-related costs that may originate in future. Using informations provided in Figure 1, below is the calculation of break-even point in units and in dollars.

Break-Even Point in Units =

Entire Fixed Cost

Gross saless Price per Unit – Variable Cost Per Unit

Break-Even Point in Units =

$ 35,363.00

$ 66.18 – $ 9.9

Break-Even Point in Units =

628.34 units

Break-Even Point in Dollars =

$ 41,583.57

( $ 628.34 units x $ 66.18 )

Figure 3. Break-Even Point Calculation

In Figure 3, the break-even points are 628.34 units and $ 41,583.57. It means that the company must sell 628.34 units of iScent Alarm Clock within six months to retrieve the cost of bring forthing those alarm redstem storksbills or to merely break-even. To farther explain ; if the company produced and sold 628.34 pieces of iScent Alarm Clock, each of these units will cover the fringy or variable costs of $ 84,170.00 every bit good as all associated fixed costs of $ 35,363.00. If the company sells 628.34 iScent Alarm Clocks, so it will non see a loss. Upon selling more than 628.34 units, all fixed costs have been settled, and each unit contributes to net incomes by the part border. Hence, if the company sells more than 628.34 units, it will be considered as income for the company. The Break-Even Point in Dollars of $ 41,583.57 is merely the monetary value of 628.34 units when sold.

Unit of measurements

Gross saless Gross

Variable Cost

Contribution Margin

Fixed Cost

Entire Cost

Net Income

100

6618

990

5628

35,363.00

36,353.00

-29,735.00

200

13236

1980

11256

35,363.00

37,343.00

-24,107.00

300

19854

2970

16884

35,363.00

38,333.00

-18,479.00

400

26472

3960

22512

35,363.00

39,323.00

-12,851.00

500

33090

4950

28140

35,363.00

40,313.00

-7,223.00

600

39708

5940

33768

35,363.00

41,303.00

-1,595.00

628.34

41583.541

6220.566

35363

35,363.00

41,583.57

0.0

700

46326

6930

39396

35,363.00

42,293.00

4,033.00

800

52944

7920

45024

35,363.00

43,283.00

9,661.00

900

59562

8910

50652

35,363.00

44,273.00

15,289.00

1000

66180

9900

56280

35,363.00

45,263.00

20,917.00

Figure 4. Tabulation of Gross saless Revenue, Variable Cost, Contribution Margin, Fixed Cost, Total Cost and Net Income

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Figure 5. Chart Summary of Break-Even Points

Figure 4 illustrates the sums of Gross saless Revenue, Variable Cost, Contribution Margin, Fixed Cost, Total Cost and Net Income upon selling units of iScent Alarm Clocks in different degrees. In analysis of the tabular array, the company incurs a negative sum or losingss when it sells less than the break-even units of 628.34. As shown in Figure 4, the company will incur a loss of $ 1,595.00 when it sells 600 units merely. On the other manus, anything sold beyond 628.34 units is automatically a net income for the company. In analysis of the break-even sums, Gross saless Revenue and Entire Cost runs to $ 41,583.60 and Contribution Margin and Fixed Cost runs to $ 35,363. Last, there is no income and loss on the break-even units of 628.34. Figure 5 shows the graphical reading of the stoping points of Gross saless Revenue, Total Cost and Net Income in relation to units sold.

Forecasting Techniques

The company has used three calculating techniques viz. ; Profit and Loss Forecast ( Figure 6 ) , Cash Flow Projection ( Figure 7 ) and Balance Sheet Forecast.

Net income and Loss Forecast

January

February

March

April

MAY

June

Sum

Gross saless

Gross saless ( invoiced )

$ 69,000.00

$ 76,000.00

$ 85,000.00

$ 99,300.00

$ 108,200.00

$ 125,000.00

$ 562,500.00

Cost of goods sold

$ 10,300.00

$ 12,100.00

$ 14,470.00

$ 15,800.00

$ 15,500.00

$ 16,000.00

$ 84,170.00

Gross net income

$ 58,700.00

$ 63,900.00

$ 70,530.00

$ 90,900.00

$ 92,700.00

$ 109,000.00

$ 478,330.00

Expenses

Wages and rewards

$ 1,800.00

$ 2,200.00

$ 2,500.00

$ 3,500.00

$ 3,900.00

$ 4,100.00

$ 18,000.00

Ad

$ 200.00

$ 200.00

$ 200.00

$ 200.00

$ 200.00

$ 200.00

$ 1,200.00

Rent

$ 300.00

$ 300.00

$ 300.00

$ 300.00

$ 300.00

$ 300.00

$ 1,800.00

Equipment hire/lease

$ 5,000.00

$ 5,000.00

Depreciation

$ 0.00

$ 20.00

$ 20.00

$ 20.00

$ 20.00

$ 20.00

$ 100.00

Electricity and gas

$ 200.00

$ 120.00

$ 150.00

$ 230.00

$ 130.00

$ 170.00

$ 1,000.00

Insurance

$ 200.00

$ 200.00

$ 200.00

$ 200.00

$ 200.00

$ 200.00

$ 1,200.00

Legal fees

$ 50.00

$ 50.00

$ 50.00

$ 50.00

$ 50.00

$ 50.00

$ 300.00

Transport/courier costs

$ 120.00

$ 90.00

$ 68.00

$ 85.00

$ 95.00

$ 82.00

$ 540.00

Postage, telephone and facsimile

$ 30.00

$ 31.00

$ 23.00

$ 28.00

$ 48.00

$ 30.00

$ 190.00

Stationery

$ 20.00

$ 23.00

$ 24.00

$ 30.00

$ 31.00

$ 31.00

$ 159.00

Repairs and care

$ 40.00

$ 34.00

$ 27.00

$ 61.00

$ 20.00

$ 58.00

$ 240.00

Marketing study

$ 300.00

$ 300.00

Design and testing

$ 400.00

$ 400.00

Patents

$ 150.00

$ 150.00

Copyright enrollment

$ 120.00

$ 120.00

Recruitment and choice

$ 200.00

$ 200.00

Water measures

$ 44.00

$ 28.00

$ 21.00

$ 34.00

$ 43.00

$ 30.00

$ 200.00

Construction

$ 3,000.00

$ 3,000.00

Office set up

$ 1,000.00

$ 1,000.00

Distribution

$ 50.00

$ 30.00

$ 49.00

$ 61.00

$ 40.00

$ 34.00

$ 264.00

Entire

$ 13,224.00

$ 3,326.00

$ 3,632.00

$ 4,799.00

$ 5,077.00

$ 5,305.00

$ 35,363.00

Consequence

Net net income

$ 45,476.00

$ 60,574.00

$ 66,898.00

$ 86,101.00

$ 87,623.00

$ 103,695.00

$ 442,967.00

Gross net income border

85 %

84 %

83 %

92 %

86 %

87 %

85 %

Net net income border

66 %

80 %

79 %

87 %

81 %

83 %

79 %

Figure 6. Net income and Loss Forecast

Cash Flow Projection for iScent

January

February

March

April

May

June

Sums

Cash Balance – Get downing

$ 50,000

$ 64,521

$ 78,585

$ 102,676

$ 127,915

$ 133,955

Cash Inflow

Operating gross

Cash grosss from clients

$ 25,000

$ 26,300

$ 24,800

$ 26,540

$ 21,050

$ 24,760

$ 148,450

Collection of receivables

$ 2,745

$ 3,102

$ 3,258

$ 3,498

$ 3,795

$ 4,046

$ 20,444

Other runing gross received

$ 0

$ 0

$ 0

$ 0

$ 0

$ 0

$ 0

Entire Operating Gross

$ 27,745

$ 29,402

$ 28,058

$ 30,038

$ 24,845

$ 28,806

$ 168,894

Other Beginnings of Cash Inflows

Returns from sale of assets

$ 0

Fundss borrowed

$ 20,000

$ 20,000

Tax refund/rebates

$ 0

Other beginnings of hard currency influx

$ 0

Entire other hard currency influxs

$ 0

$ 20,000

$ 0

$ 0

$ 0

$ 0

$ 20,000

Entire monthly hard currency influx

$ 27,745

$ 49,402

$ 28,058

$ 30,038

$ 24,845

$ 28,806

$ 188,894

Cash Outflow

Inventory ( Stock )

Stock purchases

$ 12,012

$ 13,728

$ 25,740

Other Cost of Goods

$ 0

Entire Cost of Goods

$ 0

$ 12,012

$ 0

$ 0

$ 13,728

$ 0

$ 25,740

Fixed Expenses

Wages and rewards

$ 1,800

$ 2,200

$ 2,500

$ 3,500

$ 3,900

$ 4,100

$ 18,000

Ad

$ 200

$ 200

$ 200

$ 200

$ 200

$ 200

$ 1,200

Rent

$ 300

$ 300

$ 300

$ 300

$ 300

$ 300

$ 1,800

Equipment hire/lease

$ 5,000

$ 5,000

Depreciation

$ 0

$ 20

$ 20

$ 20

$ 20

$ 20

$ 100

Electricity and gas

$ 200

$ 120

$ 150

$ 230

$ 130

$ 170

$ 1,000

Insurance

$ 200

$ 200

$ 200

$ 200

$ 200

$ 200

$ 1,200

Legal fees

$ 50

$ 50

$ 50

$ 50

$ 50

$ 50

$ 300

Transport/courier costs

$ 120

$ 90

$ 68

$ 85

$ 95

$ 82

$ 540

Postage, telephone and facsimile

$ 30

$ 31

$ 23

$ 28

$ 48

$ 30

$ 190

Stationery

$ 20

$ 23

$ 24

$ 30

$ 31

$ 31

$ 159

Repairs and care

$ 40

$ 34

$ 27

$ 61

$ 20

$ 58

$ 240

Marketing study

$ 300

$ 300

Design and testing

$ 400

$ 400

Patents

$ 150

$ 150

Copyright enrollment

$ 120

$ 120

Recruitment and choice

$ 200

$ 200

Water measures

$ 44

$ 28

$ 21

$ 34

$ 43

$ 30

$ 200

Construction

$ 3,000

$ 3,000

Office set up

$ 1,000

$ 1,000

Distribution

$ 50

$ 30

$ 49

$ 61

$ 40

$ 34

$ 264

Entire Fixed Expenses

$ 13,224

$ 3,326

$ 3,632

$ 4,799

$ 5,077

$ 5,305

$ 35,363

Other Expenses

Bank Interest

$ 0

GST

$ 335

$ 435

$ 770

Entire Other Expenses

$ 0

$ 0

$ 335

$ 0

$ 0

$ 435

$ 770

Other Cash Outflows

Purchase of assets

$ 20,000

$ 20,000

One-off bank fees

$ 0

Principal Loan refunds

$ 0

Payments to the owner/s

$ 0

Investing of excess financess.

$ 0

Other hard currency influxs

$ 0

Entire Other Cash Outflows

$ 0

$ 20,000

$ 0

$ 0

$ 0

$ 0

$ 20,000

Entire Monthly Cash Outflow

$ 13,224

$ 35,338

$ 3,967

$ 4,799

$ 18,805

$ 5,740

$ 81,873

Difference of Inflow and Outflow

$ 14,521

$ 14,064

$ 24,091

$ 25,239

$ 6,040

$ 23,066

$ 107,021

Cash balance at the terminal of each month

$ 64,521

$ 78,585

$ 102,676

$ 127,915

$ 133,955

$ 157,021

$ 664,673

Figure 7. Cash Flow Projection for iScent

Balance Sheet Projection for December 31, 2014

Assetss

Liabilitiess and Equity

Current Assetss

Current Liabilitiess

Cash in bank

$ 307,751.00

Histories collectible

$ 33,120

Histories receivable

$ 61,430.00

Interest payable

6,700

Inventory

$ 42,100.00

Taxs collectible

3,200

Prepaid disbursals

$ 400.00

Notes, short-run ( due within 12 months )

20,000

Other current assets

1,350

Current portion, long-run debt

12,000

Entire Current Assets

$ 413,031

Other current liabilities

1,4

x

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