Free Essay

Accounting

In:

Submitted By MoatazHussein
Words 5738
Pages 23
A Sample Feasibility Study1
PET ÉLAN
I. DESCRIPTION OF YOUR BUSINESS
In recent years, there has been an increase in the number of households that have pets, especially dogs and cats. Further, there is emerging a steadily growing group of pet owners that is willing to purchase upscale, unique products for these important members of their family. Pet Élan is an upscale boutique for these discriminating pet owners. Pet Élan will offer highquality pet products to discerning individuals who wish their pets to enjoy a healthy, fun, and elegant lifestyle while being pampered. By carefully selecting luxurious accessories made with superior materials, Pet Élan will provide an elite product line that celebrates the uniqueness of each animal’s personality.

Accessories Pet Élan will make walking or traveling with a dog or cat an extension of the owner’s unique style with leashes, collars, and travel bags that make a statement. We will also offer pet home accessories including food and water bowls, pet furniture and pillows, and pet clothing made from fine fabrics such as silk, suede, and faux fur. Unlike other pet stores, Pet Élan will target clientele who demand top quality in pet couture. To fulfill this demand, Pet Élan will order pet clothing and accessories from the trendiest brands such as Woof: The Small Dog Company,12 Dogz Togz,13 and Ruff Ruff and Meow.14 Unique Features: Limitations One of the largest threats to the luxury pet accessory industry is the presence of online stores. Pet Élan will compete with these online retailers, as well as other local pet stores. Consumers have the opportunity to comparison shop on the Internet, so Pet Élan will need to carefully determine the pricing strategy for each line of accessories to remain competitive. However, it is likely that pet owners will want to sample and view unique products we carry and will be willing to come to our store for its one-of-a-kind shopping experience— and bring their pets with them. The rise of larger chain pet stores, like PETCO and PETsMART, has made it much easier for pet owners to satisfy all their pet needs in one place. These stores are now offering pet apparel, pet furniture, and natural pet food. Pet Élan will offer a higher quality, but more expensive, product mix that may overlap with these stores in some areas. To counter this, Pet Élan will showcase the products we carry that cannot be obtained at the larger retailers. Competitive Advantage Pet Élan’s competitive advantage is quality and the ability to provide customers with the feeling that pampering their pets is an integral part of a healthy, fun, and contemporary lifestyle. Pet Élan must establish this reputation through high quality products and selective advertising and through exceptional customer service.

II. THE PRODUCT/SERVICE Unique Features: Benefits Pet Élan will offer products that promote a healthy, fun, and elegant lifestyle for dogs and cats. Our products are grouped into three primary categories: dietary products, playtime products, and accessories. Dietary Products Pet Élan will offer all-natural pet food and treats, full of essential vitamins and nutrients to promote a healthy diet. We will carry two to three top-selling brands of organic pet food from the industry leaders such as Newman’s Own Organics,2 Natura Pet Products,3 and Organix.4 We will also feature snacks and treats from Old Mother Hubbard,5 Three Dog Bakery,6 Flint River Ranch,7 and Howling Hound Bakery.8 Playtime Products Playing with one’s pet is also a key ingredient for a pet’s healthy lifestyle. Pet Élan will offer products that enable owners and their pets to play in style. For dogs, we will offer toys for chewing, retrieving, tugging, and chasing. For cats, we will offer toys stuffed with premium grade catnip and other toys to chase and fetch. We will offer exclusive toy brands such as Happy Dog Toys,9 KONG Toys,10 and Fat Cat, Inc.11

Stage of Development Pet Élan is currently in the idea stage. This feasibility study is the first step in exploring the market potential for a luxury pet store. The current time frame for introducing Pet Élan is one year. Pet Élan has set the following milestones to accomplish prior to launch:
● ● ● ● ● ● ● ●

Complete feasibility study: month 1. Begin and complete business plan: months 2–4. Pursue start-up capital: months 5–6. Receive start-up capital: month 7. Identify store location and secure appropriate permits: months 7–8. Plan and order inventory: month 9. Receive inventory and set up store: months 10–11. Store launch: month 12.



employers to provide insurance for accidental deaths, injuries, and occupational diseases of employees arising in the course of employment. Temporary workers who normally do not receive company benefits are still provided workers’ compensation. The Illinois Workers’ Compensation Act requires all employers to post a notice in the workplace that explains workers’ rights and lists the name and address of the workers’ compensation carrier. Unemployment insurance: Since Pet Élan will most likely employ one or more workers in each of 20 or more calendar weeks, the business will be required to make unemployment insurance contributions to the Illinois Department of Employment Security.16

Legal Restrictions and Rights Pet Élan will operate as a Sub-Chapter S Corporation to ensure limited personal liability and for tax advantages. Pet Élan will have one owner, who will have day-to-day responsibility for running the business. The corporation will receive all income generated by the business and pay the owner a salary and/or reinvest in the store. A board of directors will be appointed by the owner. Insurance Requirements Although business insurance may not be required, Pet Élan will purchase insurance to protect the corporation’s assets and to benefit employees:


Trends Related to the Product or Service Several studies show that pet ownership is at an all-time high and that people are taking better care of their pets and spending more money on them than previously. Surveys conducted every two years by the American Pet Products Manufacturers Association, Inc. (APPMA) show that 63.4 million households have a pet, compared to 52.6 million households a decade ago.17 Pet Élan will cater to the increasing number of customers that consider their pets a full-fledged member of the family. Trends in Customer Demographics The demographics of the typical customers of the pet industry have been shifting over recent years from married with children, to younger, cohabitating couples who are waiting longer for marriage, as well as married baby boomers looking to fill their empty nests, and single households composed of divorcees and seniors looking for companionship. In fact, only one-third of all pet owners today are married with children.18 Trends in Pet Products The pet products industry is booming. The upscale pet services industry was named as a hot market by Entrepreneur magazine in its annual prediction of the hottest business ideas for both 2004 and 2005.19 The APPMA also cites luxury, natural, and hygiene products as the top three amongst its top ten trends in pet gifts.20 In fact, the APPMA further notes that high-tech and high-end products such as luxury doghouses are showing the most growth.21



Property insurance will cover the business in the event of damage or loss to the business property. The insurance will need to cover the store location’s fixtures, cash registers/computers and any other equipment, any store furniture such as display tables and shelving, as well as inventory and supplies. Liability insurance will protect the business against the unfortunate situation of a customer or employee being injured on the property and suing.15

As an employer, Pet Élan will also need to secure additional insurance for:


Workers’ compensation insurance: The Workers’ Compensation and Workers’ Occupational Diseases Acts require

Similar to the human food industry, pet food trends are moving toward more organic and natural products. The Organic Trade Association reported that organic pet food sales are up by 63 percent from last year and are growing at almost three times the rate of human organic food sales.22

according to pet industry analyst Julia Dvorko, “Owners tend to pamper their pets even when they have to cut back on [household] spending. After all, even during economic downturns, people give gifts to family members and buy special treats for their children.”31

III. THE INDUSTRY AND MARKET Current Industry Americans spent a total of $34.4 billion on pet food, care, and supplies in 2004, and the industry is estimated to increase to $35.9 billion in 2005. Sixty-five percent of this estimated total was spent on food and supplies alone (supplies also included medicine).23 This growing industry is made up of a diverse customer base. Although families have been the traditional focal point of pet-related businesses, only one-third of all pet owners today are married with children.24 Pet Élan plans to not only target this traditional market, but also to reach out to newer niche markets such as seniors, young unmarried, and middle-aged couples who are married but have no children. Thirty-nine percent of Americans between the ages of 55 and 64 own a pet.25 One of the largest percentages of pet owners is 18- to 34-year-old married Americans without children (52 percent). Of this group, 36 percent own a dog and 26 percent own a cat. In addition, this group is 33 percent more likely than the average American to own more than one pet.26 Finally, 52 percent of married 35- and 54-year-olds without children have a pet and 31 percent have two or more. Market Potential for This Industry One out of three U.S. households owns a dog or cat,27 and over 80 percent of pet owners purchased at least one accessory for their pet during the past year.28 In 2003, MarketResearch.com predicted that the pet supplies industry would be an $8 billion market by 2007.29 Business Communications Co. projects that the pet services industry as a whole (including pet food, pet services, and pet supplies) will grow to $36.3 billion by 2008.30 Despite this promising growth and if the economy continues to contract, customers may have less disposable income. The percentage they intended to spend on their cat or dog may be diverted for necessity purchases. However,

The Competition Pet Élan plans to open in the 60657 zip code area of Chicago, Illinois, locally known as Lakeview. There are 22 pet-related businesses in this zip code: nine are veterinarians, three are pet sitting/ walking services, three are pet grooming services, three large chain pet stores (one PETsMart, two PETCO), two combination pet grooming/ accessories stores, a combination boarding/training store, a pet adoption/accessories store, and one boutique called “Sam & Willy’s: A Bow Meow Boutique.” While not competing directly in the 60657 area code market, national companies including Paul Mitchell, Omaha Steaks, Origins, Harley Davidson, and Old Navy are now offering lines of pet products ranging from dog shampoo, pet attire, and name-brand toys to gourmet treats and food.32 Although these companies have recognizable brand identities, they do not specialize in the pet retail market. They do not carry a full line of pet products as Pet Élan will, and they cater more to impulse buyers rather than discerning pet owners. The following table compares the strengths and weaknesses of a subset of the competitor pet stores in the 60657 area code, as well as online retailers, and highlights the differentiating features of Pet Élan. Customers According to the APPMA, 62 percent of households in the United States own a pet, and 46 percent of households own more than one pet. Also, as mentioned earlier, dogs or cats are found in at least one out of three households (in the United States).33 Data collected on dog owners show that they are likely to be married high school graduates who own their homes. As income increases, the percentage of households with a dog increases as well.34 In fact, 75 percent of the households with dogs have a combined income of greater than $35,000. This is consistent with the specific market profile of the clientele Pet Élan plans to target in the 60657 zip code.

Competitive Analysis of Pet Stores

Competitor Pet Stores in Zip Code Strengths • Limited selection • Pet grooming is core competency, not selling accessories • Does not sell pet food because of high shipping costs • Limited number of brands in pet clothing and accessories • Inexperienced sales associates Weaknesses

Differentiating Features of Pet Élan • Core competency and primary focus of store are on selecting and selling luxury pet products and accessories

Area pet grooming/ accessories stores

• Customers whose pets are being groomed can browse while they wait for their pets

PETCO35

• Well-established brand identity

• All-in-one brick-and-mortar stores

• Wide selection of basic pet necessities

• Caters to discerning pet and owner tastes by providing high-end pet products and accessories • Store owner builds personal relationships with customers based on knowledgeable service that focuses on their individual preferences and pet’s personality

• Online shopping

PETsMart36

• Well-established brand identity

• All-in-one brick-and-mortar stores

• Sells pet food online, but consumer faces high shipping costs

• Wide selection of basic pet necessities

• Caters to discerning pet and owner tastes by providing high-end pet products and accessories • Store owner builds personal relationships with customers based on knowledgeable service that focuses on their individual preferences and pet’s personality • Pet Élan will offer a wider variety of pet treats (all organic)

• Online shopping

• More pet clothing and accessories brands than PETCO, but not highend brands • Inexperienced sales associates • Limited selection—only offers one variety of pet treats • Products are not currently available on Web site • Very specific target audiences • Static Web site • Sponsor local animal shelters but doesn’t have social entrepreneurial mission

Omaha Steaks37

• Customers may add on pet treats as an impulse when shopping for themselves or for gifts

Old Navy/Harley Davidson38

• Recognizable brand

• Can target impulse buyers who are making other purchases

• Pet Élan will target customers that look for the latest pet couture by focusing on brands made exclusively for pets • Web site will provide tips and trends for hip pet owners • Five percent of pretax profits will go to a local no-kill animal shelter

Sam & Willy’s: A Bow Meow Boutique39

• Provides accessories and gifts to pets and their owners in a boutique setting

• Provides variety of organic pet food brands

Household Income for Lakeview Residents

9% 7% Less than 15K 15K–25K 25K–35K 35K–50K 50K+

8%

60%

16%

Seventy-six percent of Lakeview households have a combined income of $35,000 or more (see chart).40 Additionally, 30 percent of Lakeview residents own their homes, and 94 percent of residents over age 25 are high school graduates. The average family size is 2.56 with 7,523 residents below the age of 16 and 7,706 senior residents (65 ). The median household income is $63,695.41 Of the approximately 49,534 employed residents 16 years and older in the 60657 zip code area (as of the 2000 census), 64 percent are in “management, professional, and related occupations.”42

seek assistance from a local college or Small Business Development Center for the Web site and market research assistance. When the Pet Élan storefront opens, we plan to advertise by hosting a series of pet fashion shows, combined with an adoption event with local pet shelters. The events will raise awareness among clientele and would help a good cause. Until Pet Élan breaks even, the store will rely on the advertising and public relations from partnering with other service providers to draw customers into the store.

IV. FINANCIAL PROJECTIONS Pricing Pet Élan will price the merchandise it intends to sell using cost-plus pricing. The base cost will be the wholesale cost of the pet product, and the markup component will be the profit Pet Élan will make on each product. For purposes of this feasibility study, Pet Élan will assume a 54 percent margin on goods sold. Because Pet Élan will be selling luxury products and because the target clientele is customers with a large percentage of disposable income, we will work to maximize the profit from each item sold. The store will also follow a price skimming strategy, meaning it will set relatively high prices on the newest luxury products when they are first released, and then lower the price over time. By maintaining a wide selection of the newest fashions and accessories for cats and dogs, Pet Élan will be able to charge a higher price for newly released items, reducing prices as the trend becomes more mainstream.

Market Penetration Pet Élan will serve customers in a boutique setting where pets are welcome to browse along with their owners. The store will operate with a social entrepreneurial mission and will donate 5 percent of pretax profits to a local no-kill animal shelter. Consistent with this socially responsible mission, Pet Élan will work with other area pet-related businesses to form a network of highly qualified veterinarians, as well as well-established boarding, grooming, in-home sitting, and training service providers. By connecting Pet Élan customers with reliable service providers, Pet Élan will also benefit from the reciprocal referrals from these service providers. Pet Élan will also maintain a Web site, but initially only to provide the location and hours of operation. As the business grows, the Web site could include tips and trends information for current and future consumers to keep up with the latest in pet fashion accessories. Pet Élan will

The social entrepreneurial mission is to donate 5 percent of pretax profits to a local no-kill animal shelter, and this amount will be donated quarterly based on pretax profits from that quarter. Pet Élan made the following assumptions in putting together the sales revenue forecast for the first three years of operations:


on hand to support increased demand. The future cost of inventory is forecast to be $186,880 for year two and $211,730 for year three.







Pet Élan will sign a three-year rental agreement for a 2,000 square-foot storefront location. The rental property will be priced at $35 per square foot, with an additional real estate tax of $9.50 per square foot per annum. Pet Élan will be open for business six days a week (Monday through Saturday) from ten o’clock in the morning until seven o’clock in the evening. The store will be closed on Sunday. It is estimated that the average Pet Élan customer will spend $18 per visit and will visit the store, on average, two times per month. Pet Élan will contribute 5 percent of pretax profits to a local no-kill animal shelter on a quarterly basis. This contribution has been accounted for in the pretax net profit (loss) forecast.

Gross Margin The gross margin (sales minus cost of goods sold) for Pet Élan during the first three years of operation is estimated to be $159,620, $217,568, and $246,574 respectively. Operating Expenses There are several operational costs associated with running a pet store like Pet Élan, and these are also accounted for in the budget forecast for the first three years of operation. These operational expenses include items such as rent, utilities, advertising costs, and professional services assistance. These operational costs are summarized in total operating expenses and are forecast to be $147,907 for year one, $190,881 for year two, and $201,744 for year three. The owner will be the primary employee of Pet Élan for the first three months of operation. Beginning in the fourth month of operation, Pet Élan will hire one full-time sales associate. As the business grows, Pet Élan anticipates hiring a second full-time sales associate during the second year of operation. The full-time sales associates will assist the owner with customer service and other retail functions. Pet Élan will pay the sales associate approximately $12.25 per hour (or $25,500 per year) for the work.43 Profitability The expected net profit of Pet Élan for the first year of operation is $10,660. This profit is expected to grow significantly in the future two years as some of the initial start-up costs are defrayed and the customer base becomes larger. In year two the net profit is forecast to be $25,345, and in year three it is estimated to be $42,589. V. FUTURE ACTION PLAN Start-up Capital To start the business, Pet Élan will need to have enough start-up capital to cover leasing costs to secure the storefront location. The start-up capital will also need to cover insurance and operating expenses including appropriate licensing, store utilities, and professional services such as legal and accounting assistance. Initial inventory,

Based on these assumptions and a break-even analysis, Pet Élan’s break-even sales will be $263,699, or $21,975 per month. This was calculated by determining the total fixed costs in the first year and by dividing it by a gross margin expressed as a percentage of sales.

Sales Revenue Forecast Pet Élan forecasts gross revenues during year one of operations to be $296,740. The gross revenues for year two and year three are predicted to increase to $404,448 and $458,304, respectively. Cost Forecast Pet Élan will maintain an inventory of products in each of the three primary areas of focus mentioned earlier: dietary products, playtime products, and accessories. As products are purchased, Pet Élan will reorder monthly to maintain a sufficient inventory to serve its customers’ needs. Pet Élan has estimated that initial inventory will cost $20,000. The wholesale cost of inventory for the first year is estimated to be $147,000. As the customer base grows, Pet Élan will need to have a significantly higher amount of inventory

as well as retail equipment needs (such as a cash register) will require a large initial investment. These needs will be funded through the start-up capital that Pet Élan secures prior to opening. The amount needed is estimated to be $70,000.

Élan to form a network within the local pet products and services industry.

Sources of Start-up Capital The start-up capital of $70,000 is composed of 45 percent (or $31,500) of the owner’s personal savings, 25 percent (or $17,500) of a bank loan, in addition to two equity investors (one family member of the owner and one local veterinarian), each with a 15 percent stake (or $10,500) in the company. Further Information Needed To ensure the successful opening of Pet Élan, we must have a deeper understanding of the customer needs in the area. Conducting market research in the 60657 zip code area, using techniques such as surveys and/or focus groups of customers in Pet Élan’s target market, could assess these needs. Pet Élan should also begin to approach other pet service providers in the area to explore potential partnership opportunities that could help raise awareness about both Pet Élan and the partnering business. This would also allow the owner of Pet

Writing a Business Plan Pet Élan’s next step is to create a business plan to further explore the business model of Pet Élan from an objective point of view. By identifying strengths and weaknesses, opportunities and threats for Pet Élan as compared to other market competitors, the company will have a much better chance of reaching the business and financial objectives outlined in this feasibility study. The business plan will also provide vital information about the business to potential investors and allow them to evaluate the viability of Pet Élan’s business model. Support Needed Pet Élan will seek guidance from a local Small Business Development Center. Pet Élan will review the initial draft of the business plan with a volunteer from the Service Corps of Retired Executives (SCORE), which is associated with the Small Business Association, to learn from his or her experience. Pet Élan will also form an advisory board made up of small business owners and members of the pet retail industry.

FINANCIALS–SUMMARY
Year 1
Revenue Cost of Goods Sold Gross margin Operating expenses Net profit (loss) pretax Net profit (loss) pretax and post contribution (5%) $296,740 137,120 159,620 $147,907 $ 11,713 $ 10,660

Year 2
$404,448 186,880 217,568 $190,881 $ 26,687 $ 25,345

Year 3
$458,304 211,730 246,574 $201,744 $ 44,830 $ 42,589

FINANCIALS—YEAR 1
Month 1 September
Sales Less Cost of Goods Sold Gross Margin Operating Expenses Utilities Salaries Labor Payroll Taxes and Benefits Advertising Website Office Supplies Insurance Maintenance and Cleaning Legal and Accounting Licenses Bags, Paper, etc. Telephone Miscellaneous Rent Total Operating Expenses (Fixed Costs): Gross Profit (Loss) Contribution to Charity (5% of net): Net Profit (Loss) Pre-Tax: First year fixed costs (FC) Contribution Margin Ratio (CMR) ((sales - cogs)/sales) Annual breakeven sales (FC / CMR) Average monthly breakeven sales 185 2,500 — 313 300 20 150 250 50 350 300 150 85 200 5,833 10,686 (4,436) — (4,436) 160 2,500 — 313 300 20 75 250 50 350 — 150 85 200 5,833 10,286 (1,196) — (1,196) $ 147,910 53.8% $ 274,970 $ 22,910 165 2,500 — 313 300 20 50 250 50 350 — 200 85 200 5,833 10,316 475 24 451 180 2,500 2,125 578 300 20 50 400 50 350 — 250 85 200 5,833 12,921 1,849 92 1,756 200 2,500 2,125 578 300 20 50 400 50 350 — 250 85 200 5,833 12,941 (2,151) — (2,151) 200 2,500 2,125 578 300 20 50 400 50 350 — 250 85 200 5,833 12,941 (1,581) — (1,581) $11,620 $ 5,370 $ 6,250

Month 2 October
$16,900 $ 7,810 $ 9,090

Month 3 November
$20,060 $ 9,270 $10,790

Month 4 December
$27,460 $12,690 $14,770

Month 5 January
$20,060 $ 9,270 $10,790

Month 6 February
$21,120 $ 9,760 $11,360

Month 7 March
$ 24,290

Month 8 April
$ 26,400

Month 9 May
$ 28,510

Month 10 June
$ 31,680

Month 11 July
$ 35,900

Month 12 August
$ 32,740

Total

$ 296,740

$11,220 $13,070

$12,200 $14,200

$13,170 $15,340

$14,640 $17,040

$16,590 $19,310

$15,130 $17,610

$137,120 $159,620

180 2,500 2,125 578 300 20 50 400 50 350 — 300 85 200 5,833 12,971 99 5 94

170 2,500 2,125 578 300 20 50 400 50 350 — 300 85 200 5,833 12,961 1,239 62 1,177

165 2,500 2,125 578 300 20 50 400 50 350 — 300 85 200 5,833 12,956 2,384 119 2,265

185 2,500 2,125 578 300 20 50 400 50 350 — 300 85 200 5,833 12,976 4,064 203 3,861

185 2,500 2,125 578 300 20 50 400 50 350 — 300 85 200 5,833 12,976 6,334 317 6,017

185 2,500 2,125 578 300 20 50 400 50 350 — 300 85 200 5,833 12,976 4,634 232 4,402

2,160 30,000 19,125 6,141 3,600 240 725 4,350 600 4,200 300 3,050 1,020 2,400 69,996 147,907 11,713 1,054 $ 10,660

FINANCIALS—YEAR 2
September
Sales: Less Cost of Goods Sold Gross Margin Operating Expenses Utilities Salaries Labor Payroll Taxes and Benefits Advertising Website Office Supplies Insurance Maintenance and Cleaning Legal and Accounting Licenses Bags, Paper, etc. Telephone Miscellaneous Rent Total Operating Expenses: Gross Profit (Loss) Contribution to Charity (5% of net): Net Profit (Loss) Pre-Tax: 195 2,500 4,250 844 400 30 100 550 60 400 300 400 100 225 5,833 16,187 853 43 811 170 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,862 2,318 116 2,202 175 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,867 3,443 172 3,271 190 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,882 3,428 171 3,257 210 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,902 8 0 8 210 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,902 1,708 85 1,623 $31,680 $14,640 $17,040

October
$33,790 $15,610 $18,180

November
$35,900 $16,590 $19,310

December
$35,900 $16,590 $19,310

January
$29,570 $13,660 $15,910

February
$32,740 $15,130 $17,610

March
$31,680 $14,640 $17,040

April
$32,740 $15,130 $17,610

May
$34,850 $16,100 $18,750

June
$35,900 $16,590 $19,310

July
$33,790 $15,610 $18,180

August
$35,900 $16,590 $19,310

Total
$404,448 $186,880 $217,568

190 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,882 1,158 58 1,100

180 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,872 1,738 87 1,651

175 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,867 2,883 144 2,739

195 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,887 3,423 171 3,252

195 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,887 2,293 115 2,179

195 2,500 4,250 844 400 30 100 550 60 400 — 400 100 225 5,833 15,887 3,423 171 3,252

2,280 30,000 51,000 10,125 4,800 360 1,200 6,600 720 4,800 300 4,800 1,200 2,700 69,996 190,881 26,687 1,334 $ 25,345

FINANCIALS—YEAR 3
September
Total Sales: Cost of Goods Sold: Gross Margin Operating Expenses Utilities Salaries Variable Labor Payroll Taxes and Benefits Advertising Website Office Supplies Insurance Maintenance and Cleaning Legal and Accounting Licenses Bags, Paper, etc. Telephone Miscellaneous Rent Total Operating Expenses: Net Profit (Loss) Pre-Tax: Contribution (5%) Final Net Profit (Loss) Pre-Tax: 205 2,750 4,674 928 400 32 120 570 70 440 300 420 125 225 5,833 17,092 2,222 111 2,111 180 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,767 1,415 71 1,344 185 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,772 3,684 184 3,500 200 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,787 5,943 297 5,646 220 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,807 1,375 69 1,306 220 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,807 2,507 125 2,382 $35,904 $16,590 $19,314

October
$33,792 $15,610 $18,182

November
$38,016 $17,560 $20,456

December
$42,240 $19,510 $22,730

January
$33,792 $15,610 $18,182

February
$35,904 $16,590 $19,314

March
$38,016 $17,560 $20,456

April
$40,128 $18,540 $21,588

May
$40,128 $18,540 $21,588

June
$40,128 $18,540 $21,588

July
$40,128 $18,540 $21,588

August
$40,128 $18,540 $21,588

Total
$458,304 $211,730 $246,574

200 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,787 3,669 183 3,486

190 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,777 4,811 241 4,570

185 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,772 4,816 241 4,575

205 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,792 4,796 240 4,556

205 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,792 4,796 240 4,556

205 2,750 4,674 928 400 32 120 570 70 440 — 420 125 225 5,833 16,792 4,796 240 4,556

2,400 33,000 56,088 11,136 4,800 384 1,440 6,840 840 5,280 300 5,040 1,500 2,700 69,996 201,744 44,830 2,242 $ 42,589

INITIAL CALCULATIONS
Cost Assumptions First Year of Operations Fixed Costs (FC) Lease payment ($35 / sq. foot) Utilities Insurance Salary of Owner Salary of Sales Assistant Advertising General supplies Professional Services Miscellaneous Expenses Website Total Variable Costs (VC) Cost of Goods Sold Total Break-Even Amount Contribution margin ratio (CMR) Breakeven (FC \ CMR) Daily Breakeven number of customers Assumptions: Rental location will be 2,000 square feet Average customer spends $18 per visit and comes to the store on average twice per month. One Time Startup Costs Licensing & permits Decorating Signage Beginning Inventory Fixtures and Equipment Professional fees (accountant, attorney) Total $ $ 300 800 45 $ Monthly 5,833 200 833 2,500 2,125 200 300 667 417 20 13,095 Monthly 11,427 28,250 Monthly 53.8% $ 24,340 Monthly 1,352 Annually $ 70,000 2,400 10,000 30,000 25,500 2,400 3,600 8,000 5,000 240 157,140 Annually 137,120 339,000 Annually 53.8% $292,082 Annually 486,803

$ 5,000 $40,000 $ 6,000 $ 5,000 $57,100

Similar Documents

Premium Essay

Accounting

...management accounting systems Ran Tao Introduction Accounting is the process of identifying, measuring and communicating financial information about an entity to permit informed judgments and decisions by users of the information. (Weetman, 2010) Management accounting is a specialist branch of accounting which has developed to serve the particular needs of management. It helps companies to formulate business strategies and make right business decisions. Many different kinds of management accounting systems are available, some include cost-accounting system, job-costing system and inventory management system. In order to make a smart business decision, it is important to select an appropriate management accounting system that integrates with the company’ financial accounting system. Management accounting innovations and origins An innovation is the successful introduction of an idea perceived as new into a given social system, management accounting innovations involve a set of design characteristics. (Hopper, 2007) The innovation aspects consist of for example types of cost objects, financial or non-financial data and allocation bases. If a proposed system leads to better decisions than the existing system, and the expected benefits from the proposed system exceed the cost of implementation, the new system is adopted. (Feltham, 1972; Demski, 1980) In this case, innovative management accounting system is adopted in many businesses. Management accounting change can...

Words: 1631 - Pages: 7

Premium Essay

Accounting

...Managerial Accounting Unit 2 Individual Project Stephanie Davenport American Inter Continental University Details: Unit 2 - Cost Management Dr. Stephanie White, the Chief Administrator of Uptown Clinic, a community mental health agency, is concerned about the dilemma of coping with reduced budgets next year and into the foreseeable future but increasing demand for services. To plan for reduced budgets, she must first identify where costs can be cut or reduced and still keep the agency functioning. Below are some data from the past year. Program Area | Costs | Administration | | Salaries: | | Administrator | $60,000 | Assistant | $35,000 | Two Secretaries | $42,000 | Supplies | $35,000 | Advertising and promotion | $9,000 | Professional meetings/dues | $14,000 | Purchased Services: | | Accounting and billing | $15,000 | Custodial | $13,000 | Security | $12,000 | Consulting | $10,000 | Community Mental Health Services | | Salaries (two social workers) | $46,000 | Transportation | $10,000 | Outpatient mental health treatment | | Salaries: | | Psychiatrist | $86,000 | Two Social Workers | $70,000 | • This is how managerial accounting is different from cost accounting. Cost Accounting: It is the technique or arrangement acclimated for determining the amount of project, process, or affair acclimated by the acknowledged entities in society, or assigned by Authoritative accounting group. Cost accounting is the analysis...

Words: 521 - Pages: 3

Premium Essay

Accounting

...Understanding management accounting techniques in the context of organizational change: as strategic business partners with a responsibility to improve operations, management accountants must identify techniques that support incremental change and h elp transform their firm. EXECUTIVE SUMMARY Driven by the need for organizational change, management accounting techniques have developed and proliferated at an unprecedented rate in the last few decades. Some critics, however, have charged that the changes are a "reinvention of the wheel" every few years. To put these issues in perspective, let's look at a framework created to illustrate the distinctive nature of these techniques in an organizational change context. The framework considers such factors as user resistance and organizational culture that can influence the applicability and implementation success of the techniques. After tracing the history of management accounting beginning in 1850, accounting scholar Robert S. Kaplan comments, "Despite considerable change in the nature of organizations and the dimensions of competition during the past 60 years, there has been little innovation in the design and implementation of cost accounting and management control systems." (1) All the practices employed by companies and described in management accounting textbooks had apparently been developed by 1925, despite major changes in the nature and operations of organizations. To develop the field of managerial accounting, Kaplan and others...

Words: 569 - Pages: 3

Free Essay

Accounting

...professional with nearly 2 years of proven work experience in accounts, client relations and customer service within diversified industries. Career record of achieving set goals and consistent work performance on the basis of dedicated work approach. Ability to work under pressure, effectively meet deadlines and maintain strict confidentiality of documents. Dedicated team player who possesses excellent analytical, problem solving, communication and interpersonal skills. On visit visa with and available for immediate employment. * STRENGTHS * Well experienced Professional * General Ledger preparation * Receivables-Payables Handling * Trained in QuickBooks, Advanced Excel & Financial Modeling * Competencies in Accounting Functions * Excellent Numerical & Computing skills * Possess strong Team playing attitude * Excellent command over spoken & written English(IELTS 5.5) * QUALIFICATIONS * CMA (Certified Management Accountant-US) Processing... Institute of Business Leadership (IBL)-Islamabad (Pak) * PEARSON EXTENDED LEVEL 7 (Pearson Extended Level 7 Diploma in Strategic Management & Leadership (QCF- UK) in Sep 2015) Institute of Business Leadership (IBL)-Islamabad (Pak) * PEARSON PGD Level 7 (Pearson BTEC PGD Level 7 Diploma in Strategic Management & Leadership (QCF- UK) in April 2015) Institute of Business Leadership (IBL)-Islamabad (Pak) * HDA...

Words: 569 - Pages: 3

Premium Essay

Accounting

...Cost & Management Accounting Reporting System -Necessity, Role & Control Framework: An Analysis Management & Cost Accounting Reporting Systems are interwoven in the management processes of all well managed organizations across the globe. The necessity of such reporting systems is going to increase in future as the market-place become highly competitive and organization functions become more complicated and inter-twined. This fact also brings to fore the necessity of a common control framework to monitor this system so that it can contribute effectively and efficiently to the pre-determined organizational goals. What is Cost & Management Accounting Reporting Systems? Cost Accounting Reporting System deals with the process of tracking, measuring, recording and classifying the appropriate allocation of expenditure (financial and non-financial) for the determination of the cost of product or service in an organization and for the presentation of suitably arranged data for the purpose of control and guidance of management ( Horngren et al, 2010). Costs are measured in terms of Direct Costs, Indirect Costs and Overhead / Absorbed Costs. Managers use cost accounting to support decision making to reduce a company's costs of products and services and improve its profitability. Management Accounting Reporting System is concerned with the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of financial and non-financial...

Words: 1912 - Pages: 8

Free Essay

Accounting

...UNIVERSITY OF EDUCATION WINNEBA COLLEGE OF TECHNOLOGY EDUCATION KUMASI NAME : ASSEM GABRIEL AKROFI PROGRAMME : BSc (ACCOUNTING EDUCATION) LEVEL : 100 CLASS : B SUBJECT : ACCOUNTING COURSE CODE : ACC 111 NAME OF LECTURER : J.Y DWOMMOR INDEX NUMBER : 5151010092 QUESTION With the introduction of computer, accounting as an area of studying has out lead its importance because with two or three weeks of training, a computer programmer can prepare financial statement using computer application. A. What extend do you agree or disagree with this statement? B. In not less than two and less than five pages, write an essay on this issue. SOLUTION I disagree with the motion that a computer programmer can prepare financial statement on his own. To set the issue burning, let us consider who an accountant is and the role he or she performs in an organization as compared to a computer programmer. An accountant is anyone who monitors and records the flow of money through a business or an organization. He or she verify the accuracy of all monetary transactions and to make sure that all these are legal and follow correct guidelines. Accountants may choose to work private individuals and help them with their financial decisions, tax returns or other money related issues. The accountant practises accountancy and accounting which is the disclosure, measurement or provision of assurance about financial information which help investors, tax authorities, managers...

Words: 1379 - Pages: 6

Premium Essay

Accounting

...Management Accounting IEX Prof. Dr. Michael Lederer . Dr © Copyright : Prof. Dr. Michael Lederer Hochschule Furtwangen – Furtwangen University © Copyright : Prof. Dr. Michael Lederer Page 1 Contents overview management accounting A. Introduction and basic concepts A.1 Cost terms A.2. Costing systems and cost allocation A.3 Cost-volume-profit analysis A.4 Operations accounting 5 11 26 63 78 B. The budgeting process B.1 Budgeting B.2 Variance analysis © Copyright : Prof. Dr. Michael Lederer 87 88 114 C. Relevant cost and decision making 136 D. Marketing and pricing decisions 157 © Copyright : Prof. Dr. Michael Lederer Page 2 Recommended literature • • • • • • • • • • Horngren/Datar/Rajan: Cost Accounting. A Managerial Emphasis, Pearson Global Edition Collier: Accounting for Managers, Wiley Horngren/Bhimani/Datar/Foster: Management and Cost Accounting. FT Prentice Hall Atrill & McLaney: Management Accounting for Decision Makers, Pearson Davis/Davis: Managerial Accounting. Wiley Cooke: The McGraw-Hill 36-Hour course in Finance for Non-Financial Managers. McGraw-Hill Bragg: Controller’s Guide to Planning and Controlling Operations. Wiley Roehl-Anderson, Bragg: Controllership - The Work of the Management Accountant. Wiley Blocher/Chen/Lin: Cost Management - A strategic emphasis, McGraw-Hill Professional Dictionary, Accounting; Tax; Banking; German-English/English-German, Schäffer© Copyright : Prof. Dr. Michael Lederer Poeschel ...

Words: 9677 - Pages: 39

Premium Essay

Accounting

...HOFSTRA UNIVERSITY FRANK G. ZARB SCHOOL OF BUSINESS “Educating for Personal and Professional Achievement” DEPARTMENT OF ACCOUNTING, TAXATION, AND LEGAL STUDIES IN BUSINESS ACCOUNTING 231 - COST ACCOUNTING SYSTEMS GRADUATE- 3 S.H. SP 2016 Section A: Wednesday, 3:30-5:50pm, CRN 21871, Starr 210 INSTRUCTOR’S NAME: Dr. Nathan Slavin OFFICE HOURS: Monday and Wednesday 2:25-3:25 LOCATION OF OFFICE: 043 Weller Hall PHONE NUMBER: (516) 463-5690 E-MAIL ADDRESS: actnzs@hofstra.edu Teaching Assistant: Ms. Dan Gu (516) 637-9517 Dgu1@pride.hofstra.edu GENERAL INFORMATION Location of Department Office: 205 Weller Hall Telephone number of Department: 516-463-5684 Department Chairperson: Professor Victor Lopez Department Administrator: Prof. Linda Schain DESCRIPTION OF COURSE This course introduces students to the concepts, conventions, and principles underlying cost accounting and analysis for use by managers for making decisions. At the end of this course, students will understand cost behavior and cost allocation techniques, appreciate internal profitability reporting and analysis, and understand both job order costing and process costing systems utilizing actual, normal and standard costing applications. Also, students will...

Words: 2169 - Pages: 9

Premium Essay

Accounting

...concerned with development and maintenance of accounting records. It is the "how" of accounting. | Accounting is abstract and theoretical. It is concerned with the "why", in other words the reason or justification for any action that’s implemented. | Bookkeeping is a part of accounting. It is mainly a mechanical aspect of recording, classifying and summarising transactions. | Accounting is a four-stage process of recording, classifying, summarizing and the interpretation of the financial statements. | The process of bookkeeping does not require any analysis. | Accounting uses bookkeeping information to interpret the data and then compiles it into reports to present to management. | It records incoming transactions (received payments from customers, etc.) and outgoing transactions (paying for specific bills on the correct time, etc). | They usually deliver the business results in the form of reports. Management can see whether the company is successful or not and with the help of the analysis they can see where the problems come from in case of negative results. | There are two basic kinds of bookkeeping: single entry bookkeeping and double entry bookkeeping. | The accounting department also does preparations of a company’s budgets and plans loan proposals. | The advantages and disadvantages of computerized accounting system: Advantages | * Faster and efficient in processing of information; * Automatic generation of accounting documents like invoices, cheques and statement...

Words: 2854 - Pages: 12

Premium Essay

Accounting

...Accounting Practices Name: XXXXXXXX oooo Accounting I-ACC100 Professor XXXXXXXXX Date: XXXXXXXXX Accounting Practices The year is 2011, and this country has been nearly crippled financially with the corporate accounting scandals. One of the most famous is the scandal of Enron, Waste Management, WorldCom, Qwest Communications, Health South Corporation, and then the infamous Bernard L. Madoff Investment scandal. The Medoff Ponzi scheme robbed millions of hard working people of the savings. This is considered to be the largest investment fraud ever committed by one person. This all lead to the new and enhanced accounting standards which is called the Sarbanes-Oxley Act of 2002. Analyze the new or enhanced standards for all U.S. public company boards, management, and public accounting firms that the SOX required. The Sarbanes-Oxley Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745) is also known as the Public Company Accounting Reform and Investor protection Act of 2002 and is simply referred to as SOX. This Federal law was passed in response to many corporate scandals which was mentioned in the abstract (Consulting, 2011). The public trust in accounting standards diminished, and everyone was pulling their money out of their investments which initiated the recession we are currently in. With the implementation of SOX the public is slowly regaining their trust on accounting practices, by simply knowing there is oversight. This wide ranging legislation has established...

Words: 533 - Pages: 3

Premium Essay

Accounting

...The Accounting Information System http://edugen.wileyplus.com/edugen/courses/crs6348/kieso978... Print this page CHAPTER 3 The Accounting Information System LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Understand basic accounting terminology. 2. Explain double-entry rules. 3. Identify steps in the accounting cycle. 4. Record transactions in journals, post to ledger accounts, and prepare a trial balance. 5. Explain the reasons for preparing adjusting entries. 6. Prepare financial statements from the adjusted trial balance. 7. Prepare closing entries. 8. Differentiate the cash basis of accounting from the accrual basis of accounting. 9. Identify adjusting entries that may be reversed. 10. Prepare a 10-column worksheet. 11. Apply IFRS to the accounting information system. Needed: a Reliable Information System Maintaining a set of accounting records is not optional. Regulators require that businesses prepare and retain a set of records and documents that can be audited. The U.S. Foreign Corrupt Practices Act, for example, requires public companies to “… make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets. …” But beyond these two reasons, a company that fails to keep an accurate record of its business transactions may lose revenue and is more likely to operate inefficiently. One reason accurate records are not provided is because of economic...

Words: 929 - Pages: 4

Premium Essay

Accounting

...CHAPTER 1 THE ACCOUNTANT’S ROLE IN THE ORGANIZATION TRUE/FALSE 1. Management accounting information focuses on external reporting. Answer: True/False 2. A good cost accounting system is narrowly focused on a continuous reduction of costs. Answer: True/False 3. Modern cost accounting plays a significant role in management decision making. Answer: True/False 4. Financial accounting is broader in scope than management accounting. Answer: True/False 5. Cost accounting measures and reports short-term, long-term, financial, and nonfinancial information. Answer: True/False 6. Cost accounting provides information only for management accounting purposes. Answer: True/False 7. The key to a company’s success is always to be the low cost producer in a particular industry. Answer: True/False 8. Companies generally follow one of two basic strategies: 1) providing a quality product or service at low prices, or 2) offering a unique product or service often priced higher than competing products. Answer: True/False 9. The supply chain refers to the sequence of business functions in which customer usefulness is added to products or services. Answer: True/False 10. An effective way to cut costs...

Words: 2083 - Pages: 9

Premium Essay

Accounting

...Electronic Accounting in Today's World Leigh M., Yahoo! Contributor Network May 18, 2007 "Contribute content like this. Start Here." .More: Accounting Software Accounts Receivable Accounting Accounting Degree .Share on Facebook Share on Twitter Print Flag Close 4 Helpful? Post a comment Just about everything in the world today has been affected by technology. Particularly, accounting has been affected to the highest degree. There is less paperwork and less guesswork. Accounting software has made accounting much easier to deal with by saving all the information one enter into the system and distributing it the data amongst all the proper locations. There is only one thing accounting software has not simplified is deciding which software to use. If one were to look up the words "accounting software" on google.com one would receive nearly six million results. However, I will only discuss two. Best Software's Peachtree Complete Accounting and Intuit's QuickBooks Pro are two of the most popular small business solution systems on the market today. Peachtree offers five levels of current software ranging from $99.00 for a beginner's version to $499.00 for a premium version. QuickBooks offers six levels of software ranging from $19.95 for an online version to $3,500.00 for an enterprise version. Except exactly how do the two softwares compare in everyday use? Both can integrate with Microsoft Excel. Both systems have accounts payable, accounts receivable, etc. One can track...

Words: 360 - Pages: 2

Premium Essay

Accounting

...When comparing Managerial Accounting information and Financial Accounting information, which of the following, related to Managerial Accounting information, would be true?(It is concerned with estimates of the results of future activities) 2.In which account are the costs of manufacturing a product (that is ready for sale) accumulated until such time as the product is sold? (Finished Goods Inventory)3. Fardohnya Industries, Inc. reports the following information at 12/31/2012: -Acquired $75,000 cash by issuing common stock -Paid $70,000 cash for materials used in the manufacture of 200 units of product -Paid $16,000 cash for administrative salaries -Paid $35,000 cash for factory wages -Recognized depreciation on factory equipment, $5,000 -Collected $160,000 cash on sales made during 2012 -Recognized depreciation on office furniture, $3,500. Fardohnya makes all sales for cash. There are no credit sales. What is the total product cost?(110,000)* Product costs consist of materials used, labor applied, and overhead. Fardohnya, therefore, has a total product cost of $110,000 ($70,000 + $35,000 + $5,000).4. Fardohnya Industries, Inc. reports the following information at 12/31/2012: -Acquired $75,000 cash by issuing common stock -Paid $70,000 cash for materials used in the manufacture of 200 units of product -Paid $16,000 cash for administrative salaries -Paid $35,000 cash for factory wages -Recognized depreciation on factory equipment, $5,000 -Collected $160,000 cash on sales made during...

Words: 3325 - Pages: 14

Premium Essay

Accounting

...(a) Joe Delong is not sure about the difference between cost accouting and a cost accounting system. Explain the difference to Joe. Answer: Cost accounting involves the measuring, recording, and reporting of product costs. A cost accounting system consists of manufacturing cost accounts that are fully integrated into the general ledger of a company. (b) What is an important feature of a cost accounting system? Answer: An important feature of a cost accounting system is the use of a perpetual inventory system that provides immediate, up-to-date information on the cost of a product. 2. (a) Distinguish between the two types of cost accounting systems. Answer: The two principal types of cost accounting systems are: (1) job order cost system and (2) process cost system. Under a job order cost system, costs are assigned to each job or batch of goods; at all times each job or batch of goods can be separately identified. A job order cost system measures costs for each completed job, rather than for set time periods. Under a process cost system, product-related costs are accumulated by or assigned to departments or processes for a set period of time. Job order costing lends itself to specific, special-order manufacturing or servicing while process costing is better suited to similar, large-volume products and continuous process manufacturing. (b) May a company us both types of cost accounting systems? A company may use both types of systems. For example, General Motors uses...

Words: 478 - Pages: 2