Team Project – Real-world scenario related to decision making for financial managers

Instructions

Students are expected to use and master Excel during their UMGC program.  Tutorials are available in the UMGC classrooms along expectations for basic competencies.

The teams will be assigned in Week 4 and will be due in Week 11. The Team Project gives students the opportunity to work on a real-world scenario related to decision making for financial managers. Team size will be determined by the number of enrolled students at the end of week 3. Students will coordinate and assign tasks to team members. This is an opportunity to further expand the abilities of the students to coordinate a project and work together to successfully meet deadlines.

In most cases all group members receive the same grade. However, occasionally, the professor may choose to assign different grades to each student based on their contribution to the project.

With that being said I’m behind the power curve in the attached documents you find the responsibilities of my classmates and mine (tyrone) I need your assistance in providing my portion to the team rather quickly to meet our suspense.  Below you find role and responsibilities along with background on the secanrio.  The attached powerpoint will also need to be completed my portion only.

Financial Analysis for Bobble in Style: Preparing for Shark Tank Timeline and Progress Tracking July 17 – 19: Research and Information Gathering – Collect relevant financial data and information from the provided project document. – Identify key tasks and assign specific sections to group members based on the outlined financial analysis tasks (#1-8). July 20 – 23: Drafting Individual Sections – Each member works on their assigned task:

1. Financial Statements: Develop the Income Statement, Cash Flow Statement, and Balance Sheet. (Toyria)

2. Financial Ratios: Calculate and explain the

Net Profit Margin

,

Quick Ratio

, and

Debt-to-Equity Ratio

. (Tchrieyah)

3. Cost Classification and Budgeted Income Statement: Classify costs and prepare the budgeted income statement. (Tyrone)

4. Net Present Value Analysis: Calculate the NPV of the new equipment investment. (Tchrieyah)

5. Budget Preparation: Create a new budgeted income statement assuming doubled production and sales.(Toyria)

6. Incremental Analysis: Compare the two rental options for additional production space. (Tyrone)

7. Break-Even Analysis: Calculate the break-even point for production and sales. (Tyrone)

8. Contribution Margin: Determine the contribution margin per unit and the total contribution margin. (Tyrone)

July 24 – 25: First Draft Compilation – Combine individual sections into a cohesive first draft of the PowerPoint presentation and written executive summary. (Tchrieyah will draft and post for adding information)Ensure logical flow and consistency in writing style. – Group review of the draft, identifying areas for improvement.

July 26 – 27: Revisions and Refinements – Address feedback from the group review. – Enhance clarity, coherence, and argument strength in both the PowerPoint presentation and the written executive summary. – Finalize introduction and conclusion slides. – Proofread for grammatical and typographical errors.

July 28 – 29: Final Review and Polishing – Conduct a thorough final review of the entire document and presentation. – Incorporate any last-minute changes or additions. – Ensure all citations and references are correctly formatted. – Prepare the document and presentation for submission.

July 30: Submission – Submit the finalized project by the due date. – Celebrate the completion of the project
MGMT 640

GROUP PROJECT

Scenario: Your team has been hired to provide financial analysis for a start-up company, Bobble in Style, which produces customized bobble heads. The bobble heads are made out of less rigid materials and are more true to life than those of competitors. The company inventors, Mr. and Mrs. Lee, are going to pitch their idea to Shark Tank in a few months, but first they need to have a better understanding of the business financials. The Lee’s are already creating and selling their product from their home-based office and work area. They know what costs are involved with making the bobble heads on a small scale, but they don’t have an understanding of financial figures beyond basic costs. They need you to make sense of various financial figures for them.

The Project: There are several financial analysis tasks involved with this project, which are outlined below (#1-8). Once you have worked through each task, you will need to produce a PowerPoint presentation to introduce and highlight your findings. Your PowerPoint presentation should include a title slide, an executive summary slide(s), subsequent slides that illustrate your findings, any additional recommendations that you would like to make, and a conclusion slide. The PowerPoint presentation should be approximately 15-25 slides in length. Include notes in the presentation as needed. You will also need to create a written executive summary (one page in length). Your final submission will include the PowerPoint presentation, the executive summary, and an Excel file with relevant calculations. The specific financial analysis tasks and related information are listed below (#1-8).

Working in a Group: Your instructor will assign you into a group during Week 4. This allows time for students to drop/add during the first 3 weeks of the course. Starting early will allow for adequate time to develop timelines and assign responsibilities as a team. Group Projects provide the opportunity to work with your classmates and are a necessary part of the Financial Management workforce. Please use this occasion to demonstrate your strengths and allow group members to do the same. Critically thinking and creativity are vital to your success in the work place and this project is a great chance to build those talents.

It is a group project so you will need to coordinate with various members of your group on how to progress with the project. Often students are reluctant to work in groups, but as you have experienced in the workplace, working in a group will not be an option. You will learn together and find out more about flexibility and sharing of responsibilities with the project. All team members should contribute to the financial analysis tasks. A timeline for completion of these tasks should be determined by the team. The completed PowerPoint presentation should be cohesive and professional in appearance. You may decide to split the Executive Summary and PowerPoint presentations between all members, or you may decide to have 2 students focus on the Executive Summary Word document and content for the associated PowerPoint slide while the rest of the team members focus on the PowerPoint presentation. The decision should be based on what works best for your team. Also determine a timeline for this portion of the assignment. Consider how editing will be done within your team. Use the grading rubric to help guide your work!

Financial Statements: Develop an Income Statement for 20XX, Cash Flow Statement for 20XX, and Balance Sheet as of the end of 20XX based on the data provided below for year 20XX. All sales are collected when the sale is made and all expenses are paid when the expense is incurred. Explain the purpose of each financial statement.

Income Statement Data for 20XX:

Units produced and sold = 420

Sales ($80 per unit selling price) = $33600

Cost of goods sold ($30 per unit, all variable costs) = $12600

Labor = $0 (Mr. and Mr. Lee were the only ones working and did not pay themselves)

Advertising fees =$2000

Bank fees = $150

Phone/internet = $1200

Shipping ($3 per unit) = $1260

Utilities = $900

Office supplies = $800

Interest expense on note payable = $350

Depreciation expense (straight line) = $800

Income tax rate = 26 %

Other Financial Data for 20XX:

Proceeds from sale of equipment = $3000. The equipment originally cost $1000 and had accumulated depreciation of $200.

Purchase of equipment = $1600 (The machine is purchased on the last day of 20XX so no depreciation expense is recorded.)

Repayment of note payable = $5000

Consider any data relevant from the income statement.

Balance Sheet Data for Beginning of 20XX:

Cash and cash equivalents = $10000

Accounts receivable = $0 (Cash is received at time of sale)

Raw materials inventory = $10500

Equipment = $5000 (This includes the $1000 cost of the equipment sold in 20XX).

Accumulated depreciation = $1,000 (This includes the accumulated depreciation of 200 for the equipment sold in 20XX.

Accounts payable = $0 (Cash is paid at the time of purchase.)

Note payable = $5000 (This is the note payable which is repaid in 20XX)

Common stock = $15000

Retained earnings = $4500

1. Financial Ratios: Calculate the following financial ratios and explain the meaning of the results.

Net Profit Margin
Quick Ratio
Debt-to-Equity Ratio

1. Cost Classification: The Lee’s have provided you with the following costs and relevant information that are assumed for year 20XY.

A. Classify each of the costs (a. through j.) below under C. as a variable cost or a fixed cost.

B. Explain the importance of distinguishing between variable and fixed costs.

• C. Prepare a budgeted income statement, assuming 600 units to be produced and sold, a per unit selling price of $85, an income tax rate of 28% and the following information.
• Cost of goods sold of $35 per unit
• Labor = $400/month
• One part-time employee will be hired to take care of packaging and shipping. This employee will be paid $10 per hour. He or she is estimated to work 40 hours total per month.
• Advertising fees = $3,000
• Bank fees = $200
• Phone/internet = $150 per month
• Shipping = $3 per unit
• Utilities = $100 per month
• Office Supplies = $900
• Conference Exhibitor Fee = $3000
• Travel Expenses for Conference (e.g. airfare, meals, taxi) = $1200
• Net Present Value: The Lees are considering adding a new piece of equipment that will speed up the process of building the bobble heads. The cost of the piece of equipment is $52000. It is expected that the new piece of equipment will lead to cash flows of $17000, $23000, and $30000 over the next 3 years. If the appropriate discount rate is 8%, what is the NPV of this investment? Explain the findings.

Budget Preparation: The Lees believe that production and sales could double after being on Shark Tank which is scheduled in December of 20XY. They want to be prepared for this. Based on the budgeted income statement calculated above for 20XY, create a new budgeted income for 20XZ assuming that the production and sales is double the level of 20XY.

1. Incremental Analysis: If production does increase dramatically after their presentation on Shark Tank, the Lees will need more space for production. They have two options. Option 1 is to rent out a spacious warehouse nearby. If they pursue this option, there rent will be $2400 per month and utilities are estimated to cost an additional $350 per month. Their second option, Option 2, is to rent a smaller storefront space that is also nearby. The storefront rent is $1950 per month. However, utilities will likely only cost an additional $250 per month. They want to compare their options over one year’s time (since each rental contract is a 1 year commitment). What is the incremental analysis if the Lees choose Option 1 over Option 2?

Break-Even Analysis: You have been asked to calculate how many units need to be sold to break even, based on the costs provided in task #3. Assume that only one conference will be attended and the estimated expenses associated with this conference are on target. Use the information in task #3 except do not consider taxes.)

University of Maryland Global Campus
MGMT 640 9035: Financial Decision Making for
Managers
Dr. Jane Sadd Smalec
July 19, 2024
Team 4
Toyria Mattear
Tchrieyah Napier
Tyrone Ramsey
Executive Summary
• Our team has been hired to provide financial analysis for a start-up company,
Bobble in Style, which produces customized bobble heads. The bobble heads are
made out of less rigid materials and are more true to life than those of competitors.
The company inventors, Mr. and Mrs. Lee, are going to pitch their idea to Shark
Tank in a few months, but first they need to have a better understanding of the
business financials. The Lee’s are already creating and selling their product from
their home-based office and work area. They know what costs are involved with
making the bobble heads on a small scale, but they don’t have an understanding of
financial figures beyond basic costs. They need you to make sense of various
financial figures for them.
Income Statement
Cash Flow Statement
Balance Sheet
Financial Data
Net Profit Margin
Quick Ratio
Debt-to-Equity Ratio
Cost Classification
• Variable Cost
• Fixed Cost
Net Present Value
• In order to calculate Net Present Value (NPV) of the new equipment
details
• Present value of inflows = Cash inflow*Present value of
discounting factor(8%,time period)
• =17000/1.08+23000/1.08^2+30,000/1.08^3
• =$59,274.50
• NPV=Present value of inflows-Present value of outflows.
• =59,274.50 – 52000
• =$7,274.50
• Since NPV is positive the project should be accepted.
Budget
Preparation
Incremental Analysis
Break Even Analysis
Contribution Analysis
Summary of Conclusion
References
Income Statement Data for 20XX:
Units produced and sold = 420
Sales ($80 per unit selling price) = $33600
Cost of goods sold ($30 per unit, all variable costs) = $12600
Labor = $0 (Mr. and Mr. Lee were the only ones working and did not pay themselves)
Advertising fees =$2000
Bank fees = $150
Phone/internet = $1200
Shipping ($3 per unit) = $1260
Utilities = $900
Office supplies = $800
Interest expense on note payable = $350
Depreciation expense (straight line) = $800
Income tax rate = 26 %
Other Financial Data for 20XX:
Proceeds from sale of equipment = $3000. The equipment originally cost $1000 and
had accumulated depreciation of $200.
Purchase of equipment = $1600 (The machine is purchased on the last day of 20XX so
no depreciation expense is recorded.)
Repayment of note payable = $5000
Consider any data relevant from the income statement.
GIVEN
$420.00
$33,600.00
$12,600.00
$0.00
$2,000.00
$150.00
$1,200.00
$1,260.00
$900.00
$800.00
$350.00
$800.00
$0.26
$2,200.00
-$1,600.00
-$5,000.00
Balance Sheet Data for Beginning of 20XX:
$10,000.00
Cash and cash equivalents = $10000
$0.00
Accounts receivable = $0 (Cash is received at time of sale)
$10,500.00
Raw materials inventory = $10500
$5,000.00
Equipment = $5000 (This includes the $1000 cost of the equipment sold in 20XX).
Accumulated depreciation = $1,000 (This includes the accumulated depreciation of 200 for-$1,000.00
the equipment sold in 20XX.
$0.00
Accounts payable = $0 (Cash is paid at the time of purchase.)
$5,000.00
Note payable = $5000 (This is the note payable which is repaid in 20XX)
$15,000.00
Common stock = $15000
$4,500.00
Retained earnings = $4500
$1,000.00 -$200.00
INCOME STATEMENT FOR BOBBIE IN STYLE ENDING DECEMBER 31, 20XX
Revenue for 20XX
Sales ($80 per unit)
COGS ($30 per unit)
Gross profit
Operating Expenses
Advertising fees
Bank fees
Phone/internet
Shipping ($3 per unit)
Utilities
Office supplies
80
30
Year Ended 12/31/20XX
420
420
3
420
Total Operating Expenses
EBITDA
Depreciation expense (straight line)
EBIT or Pretax Income
Interest expense on note payable
0
Earnings before Tax
0
Tax
0.26
NET INCOME (Before sale of Fixed Asset)
Gain on sale of asset
Taxes on gain
Net Income ( after Sale of Fixed Asset)
Memo Total Taxes
0
3000-1000+200
LE ENDING DECEMBER 31, 20XX
Comments
$
$
$
33,600.00
12,600.00
21,000.00
$
$
$
$
$
$
2,000.00
150.00
1,200.00
1,260.00
900.00
800.00
$
6,310.00
$
14,690.00
$
800.00
$
$
13,890.00
350.00
$
13,540.00
$
3,520.00
$
10,020.00
$
$
2,200.00
572.00
$
11,648.00
$
4,092.00
Bobble in Style
Balance Sheet
As of December 31, 20XX
ASSETS
(Current)
Cash and Equivalents
Accounts Receivable
Inventories
TOTAL CURRENT ASSETS
CURRENT YEAR END
$
16,648.00
$
$
10,500.00
$
27,148.00
(Fixed)
Property, plant, equipment
Less: Accum. Depreciation
TOTAL FIXED ASSETS
$
$
$
5,000.00
(1,000.00)
4,000.00
TOTAL ASSETS
$
31,148.00
PRIOR YEAR END
LIABILITIES
(Current)
Accounts Payable
Income Taxes Payable
Total Current Liabilities
CURRENT YEAR END
PRIOR YEAR EAND
0
$
$
–
Long Term Notes Payable
Total Long Term Liabilities
0
0
Total Liabilities
$
–
EQUITY
Common Stock
Retained Earnings
Total Equity
$
$
$
15,000.00
4,500.00
19,500.00
TOTAL LIABILITIES & EQUITY
$
31,148.00
Bobble in Style
Statement of Cash Flows
For The Year Ended December 31, 20XX
Operating Activities
Net Income
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and Amortization
Gain on Sale of Fixed Assets
Subtotal Net Income after adjustments
Change in Working Capital
Changes in Current Assets:
Increase or decrease in accounts receivable
Increase or decrease in inventory
Changes in current liabilities:
Increase or decrease in Accounts Payable
Increase or decreas in other current liabilities sucha s taxes payable
Net change in Working Capital
$11,648.00
$800.00
$2,200.00
$10,248.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Net Cash Provided by Operating Activities
$10,248.00
Investing Activities
Purchase of Equipment
Sale of Fixed Assets (Equipment)
-$1,600.00
$3,000.00
Net Cash used in Investing Activities
$1,400.00
Financing Activities
Payment of Notes Payable
-$5,000.00
Net Cash Provided in Financing Activities
-$5,000.00
Net Increase (Decrease) in Cash
Cash at Beginning of Period
Ending Cash Balance
$6,648.00
$10,000.00
$16,648.00
$16,648.00
$0.00
Cash Flow Statement Purpose:
All sources and uses of the company’s cash are shown for the accounting period.
The gain should not be reported in the operating activities section of the cash flow statement
An increase in the value of a current asset is a use of cash, a decrease is a source of cash
An increase in a current liabilitiy is a soure of cash; a decrease is a use of cash
The gain on the sale of the asseet should be reported as part of investin activities
Checks to zero
Income Statement Data for 20XY:
Units produced and sold = 600
Sales ($85 per unit selling price) = $51000
Cost of goods sold ($35 per unit, all variable costs) = $12600
Labor = $400/month
Advertising fees =$3000
Bank fees = $200
Phone/internet = $150 per month
Shipping ($3 per unit) = $1260
Utilities = $100 per month
Office supplies = $900
Conference Exhibitor Fee = $3000
Travel Expense (e.g. airfare, meals, taxi) = $1200
Income tax rate = 28 %
GIVEN
$600.00
$51,000.00
$21,000.00
$4,800.00
$3,000.00
$200.00
$1,800.00
$1,800.00
$1,200.00
$900.00
$3,000.00
$1,200.00
$0.26
Other Financial Data for 20XY:
Consider any data relevant from the income statement.
Balance Sheet Data for Beginning of 20XX:
Cash and cash equivalents = $?
Accounts receivable = $0 (Cash is received at time of sale)
Raw materials inventory = $
Equipment = $
Accumulated depreciation =
Accounts payable = $0 (Cash is paid at the time of purchase.)
Note payable = $? (This is the note payable which is repaid in 20XY)
Common stock = $?
Retained earnings = $?
$52,000.00
$10/HR @40 HR per month
INCOME STATEMENT FOR BOBBIE IN STYLE ENDING DECEMBER 31, 20XX
Revenue for 20XX
Sales ($80 per unit)
COGS ($30 per unit)
Gross profit
Operating Expenses
Labor Cost
Advertising fees
Bank fees
Phone/internet
Shipping ($3 per unit)
Utilities
Office supplies
Conference Exhibitor Fee = $3000
Travel Expense (e.g. airfare, meals, taxi) = $1200
85
35
Year Ended 12/31/20XX
600
600
400
12
150
3
100
12
600
12
Total Operating Expenses
EBITDA
Depreciation expense (straight line)
EBIT or Pretax Income
Interest expense on note payable
0
Earnings before Tax
0
Tax
0.28
NET INCOME (Before sale of Fixed Asset)
Gain on sale of asset
Taxes on gain
Net Income ( after Sale of Fixed Asset)
Memo Total Taxes
0
3000-1000+200
ENDING DECEMBER 31, 20XX
Comments
$
$
$
51,000.00
21,000.00
30,000.00
$
$
$
$
$
$
$
$
$
4,800.00
3,000.00
200.00
1,800.00
1,800.00
1,200.00
900.00
3,000.00
1,200.00
$
17,900.00
$
12,100.00
$
–
$
$
12,100.00
–
$
12,100.00
$
3,388.00
$
8,712.00
$
$
–
$
8,712.00
$
3,388.00
20XZ SALES
Revenue Information
Sales ($85 per unit)
COGS ($35 per unit)
Gross profit
Operating Expenses
Labor Cost (2 part time employes 400/month each
Advertising fees
Bank fees
Phone/internet
Shipping ($3 per unit)
Utilities
Office supplies
Conference Exhibitor Fee = $3000
Travel Expense (e.g. airfare, meals, taxi) = $1200
Year Ended
12/31/20XZ
Comments
85
1200 $ 102,000.00
35
1200 $ 42,000.00
$ 60,000.00
800
150
3
100
12 $
$
$
12 $
1200 $
12 $
$
$
$
9,600.00
3,000.00
200.00
1,800.00
3,600.00
1,200.00
900.00
3,000.00
1,200.00
Total Operating Expenses
$ 24,500.00
EBITDA
$ 35,500.00
Depreciation expense (straight line) (Over 5 years)
5
52000 $ 10,400.00
EBIT or Pretax Income
Interest expense on note payable
$ 25,100.00
$
–
Earnings before Tax
$ 25,100.00
Tax
0.28 $ 7,028.00
$
$ 18,072.00
$
$
$
–
NET INCOME
Gain on sale of asset
Taxes on gain
Net Income ( after Sale of Fixed Asset)
Memo Total Taxes
0
$
–
$
7,028.00
Year
0
1
2
3
Year
$0.00
$1.00
$2.00
$3.00
Cash Flow
-52000
17000
23000
30000
Discount Rate
0.08
$7,274.50
COST
CASH FLOWS TOTALS
DISCOUNT FACTOR
PRESENT
@8%
VALUE
-$52,000.00
-$52,000.00
-$52,000.00
$17,000.00
$0.08
$15,740.74 -$36,259.26
$23,000.00
$0.08
$35,459.53 -$16,540.47
$30,000.00
$0.08
$59,274.50 $7,274.50
$7,274.50
University of Maryland Global Campus
MGMT 640 9035: Financial Decision Making for
Managers
Dr. Jane Sadd Smalec
July 19, 2024
Team 4
Toyria Mattear
Tchrieyah Napier
Tyrone
Executive Summary
• Our team has been hired to provide financial analysis for a start-up company, Bobble in
Style, which produces customized bobble heads. The bobble heads are made out of less rigid
materials and are more true to life than those of competitors. The company inventors, Mr. and
Mrs. Lee, are going to pitch their idea to Shark Tank in a few months, but first they need to
have a better understanding of the business financials. The Lee’s are already creating and
selling their product from their home-based office and work area. They know what costs are
involved with making the bobble heads on a small scale, but they don’t have an
understanding of financial figures beyond basic costs. They need you to make sense of
various financial figures for them.
Income Statement
• The income statement or
profit and loss statement
( P & L) shows a
company’s financial
performance over a
specific period. It details
how revenue is
transformed into net
income, portraying the
company’s profitability.
• Assesses company’s
operational efficiency,
provides insight into
revenue streams and cost
management. It also helps
compare performances
over different periods of
time.
Cash Flow Statement
• The cash flow statement
details the inflows and
outflows of cash over a
specific period. It’s divided
into three mains sections.
As shown, they are the
operating, investing, and
financial activities.
• Helps assess liquidity,
solvency and financial
health. Its also critical for
evaluating a company’s
ability to generate cash to
fund operations, pay debts,
and return value to
shareholders.
Balance Sheet
• The balance sheet
provides a snapshot of
a company’s financial
position at a specific
point in time. It helps
stakeholders assess the
company’s liquidity,
financial fleixibily,
and capital structure.
• Provides insight into
what the company
owes and owns.
Net Profit Margin
• Net profit margin is calculated by dividing the net profit
(profit after tax) by the net sales and multiplying by 100 to
get a percentage:
• Net Profit $11,648/Net Sales $ 33,600=.35*100
• Net profit margin = 35%
Quick Ratio
Quick ratio = Current assets – inventories / Current
liabilities (Nothing listed in file)
$27,148.00 – $10,500 / 0
Debt-to-Equity Ratio
• In order to calculate debt to equity ratio you divide the
total liabilities by stock holders equity
Cost Classification
Activity
Labor = $400/month
Advertising fees =$3000
Bank fees = $200
Phone/internet = $150 per month
Utilities = $100 per month
Office supplies = $900
Conference Exhibitor Fee = $3000
Travel Expense (e.g. airfare, meals, taxi) = $1200
Cost of goods sold ($35 per unit, all variable costs) = $12600
b) part time employee $10 per hour, 40 hours per month
Shipping ($3 per unit) = $1260
Type
Fixed Cost
Fixed Cost
Fixed Cost
Fixed Cost
Fixed Cost
Fixed Cost
Fixed Cost
Fixed Cost
Variable Cost
Variable Cost
Variable Cost
• Fixed Cost
• Remains constant
regardless of production
level
• Variable Cost
• Fluctuates with the level
of sales or production
Cost Classification (Con’t)
• Fixed Cost (Remains constant regardless of production level)
•
Knowing and understanding the fixed cost helps with operating the cost
from a fundamental baseline of what expenses need to be covered.
• Variable Cost (Fluctuates with the level of sales or production)
•
A crucial part of budgeting comes with knowing how to manage the
changes in variable cost to direct the flow of activity level in production or
sales. Understanding variable cost can also help evaluate the business
present position and predict expense associated with scaling productions or
sales.
Distinguish Fixed cost and Variable cost
• Knowing what price to set products at for profit is important for growth. Strategically pricing to cover
fixed cost while making a profit will take knowing the contribution margin . Sales price minus the variable
cost will include knowing the break-even point through determining what prices to set for products to turn
a profit.
• Understanding the cost and structure of the business is crucial to forecasting and planning potential
outcomes. Recognizing and analyzing changes in sales volume associated with production helps divide the
fixed cost and variable cost to determine what changes can be implemented to affect sales. Fixed cost can’t
be changed or remain constant whereas variable cost can be adjusted for improvement in efficiency.
• Identifying the changes needed helps the operational flow of sales by using the information of fixed cost to
determine how to better utilize strategies for operations. To maintain a level of efficiency or implement
operational strategies, fixed cost can be incentivized to increase production to spread load cost over
different areas of operation to reduce cost.
Bobby Employees
Fixed Cost:
• Labor =$400 per month for one part time
employee
• Impact of 2 part timers:
• Fixed labor cost increase to $800
• Production implications:
• Increase production and sales = higher revenue
assuming demand supports the increased output
Variable Cost:
• Part time employee wages =$10 per hour at
40 hours a month month for one part time
employee; total 400 per month for labor
• Impact of 2 part timers:
• increased variable cost of labor, potential
increase the production capacity which can
be leveraged t generate more sales
Net Present Value
• In order to calculate Net Present Value (NPV) of the new equipment
details
• Initial Investment
• Expected future cash flows from the investment
• Required rate of turn
• =17000/1.08+23000/1.08^2+30,000/1.08^3
• =$59,274.50
•
•
•
NPV=Present value of inflows-Present value of outflows.
=59,274.50 – 52000
=$7,274.50
•
Since NPV is positive the project should be accepted.
Budget Preparation
Note: Budget includes additional part time employee
New equipment depreciation over a span of 5 years
Financial Data
• Current Position 20XX:
• Position 20XY:
• Revenue: $33,600
• Revenue: $51,000
• Net Income: $11,648
• Net Income:$8,712
• Gross Profit Margin: 62.5% • Gross Profit Margin: 58.8%
• Net Profit Margin: 34.7% • Net Profit Margin:17.1%
• Projected Position 20XZ:
• Revenue: $102,000
• Net Income:$18,072
• Gross Profit Margin: 58.8%%
• Net Profit Margin: 17.7%
Financial Data (con’t)
Increased labor, with the investment of new equipment, and changes to COGS price per unit
significantly increases revenue
20XZ
Chart Title
$120,000
70.00%
62.50%
58.80%
$100,000
58.80%
COGS ($35 per unit)
Labor Cost (2 part time
employes)
Advertising fees
60.00%
50.00%
13%
$80,000
40.00%
$60,000
$102,000
30.00%
$40,000
20.00%
$20,000
2%
4%
1%
2%
5%
2%
0%
4%
Bank fees
Phone/internet
55%
12%
Shipping ($3 per unit)
Utilities
Office supplies
$51,000
$11,648
$18,072
$8,712
$0
20XX
Conference Exhibitor Fee
10.00%
$33,600
20XY
Travel Expense
0.00%
20XZ
Revenue
Net Income
Gross Profit Margin
Net Profit Margin
*Increased labor over the years will triple
production, and increase Net Income
Depreciation expense/ 5
Years
Incremental Analysis (Tyrone)
What is the incremental analysis if the Lees choose Option 1 over
Option 2?
• Option 1 is to rent out a spacious warehouse
• Option 2, is to rent a smaller storefront
nearby.
– Rent = $1950 per month , additional $250
–Rent = $2400 per month, addition $350 per
per month for utilities.
month for utilities.
-Total year=$26,400 (1950+250=2200 x
-Total year= $33,000 (2400 + 350=2750 x 12 months)
12 months)
Break Even Analysis (Tyrone)
Contribution Analysis (Tyrone)
Recommendations (Tyrone)
Summary of Conclusion
References
• Completed MGMT 640 Financial Statements (1)2.xlsx