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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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  • Number of pages: 2

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Food Choice is a startup bakery retail establishment which is to be located southwest of Australia .Food Choice expects to get the interest of regular loyal customer base with its broad variety of bakery products. It plans to build a strong market position in the town due to the partners' industry experience and mild competition climate in the area. Food Choice aims to offer high quality pastry products at a competitive price to meet the demand of the middle to higher income local market area residents and tourists.

Food choice also wants to establish a large regular customer base and will therefore concentrate its business and marketing on local residents which will be the dominant target market.

Food Choice financing will come from the partners' capital and a ten year bank loan. The startup requirements are as follows:

Expenses amount

legal $3000

equipment $5000

Inventory $3000

Installation $2000

Other expenses $177000

Total $190000

REVENUE PROPOSAL

Expected revenue

Sales $450000.00

External projects $1600.00

Miscellaneous $100.00

Total $21700.00

Capital expenditure proposal

Category projected spend

Delivery vans $7000

Fixed assets $400

Capital maintenance $200

Total $7600

Capital investment proposal

Category projected spend

Equipment cost $5000

Installation cost $2000

Inventory cost $3000

Total $10000

FINANCIAL PLAN

Food Choice bakery expects to raise $100000 of its own capital and to borrow a long term loan of $ 90000 from the bank. This will provide the bulk of the current financing required.

Projected Profit and Loss

As the profit and loss table shows Food Choice bakery expects to continue over the next three years of operation.

Proforma profit and loss

Year 1

Sales $450000

Direct cost $30000

Gross margin $420000

Expenses

Payroll $20000

Delivery $10000

Utilities $1200

Profit $388800

Projected Cash flow

The cash flow projection shows that provision for the ongoing expenses are adequate to meet Food Choice bakery's needs as the business generates cash flow sufficient to support operation.

Year 1

Cash sales $450000

Expenditures from operations $250000

Net cash flow $200000

Cash balance $150000

PART B

Budget Estimates

Year 1

Sales $450000

Direct cost $30000

Gross margin $420000

Expenses

Payroll $20000

Delivery $10000

Utilities $1200

Profit $388800

These figures are on a forecast nominal basis and are in line with the approval process. The budget is presented on a real expenditure basis to allow comparison over time. The partners of Food choice bakery are confident that the proposed budget estimates is prudent and is driven by genuine needs (Nicholas 2003). The estimates were drafted during a meeting held by the partners of food choice where they were all given a chance to propose the expected incomes and expenses. At the end of the meeting they presented the above budget estimates.

ASSEMENT 2-CASE STUDY

TMH Ltd. Statement of financial position for year ending 31 June 2009

$

Assets:

Current Assets:

Cash  330,000

Accounts Receivable 124,000

Inventory 170,000  

Total Current Assets: 624,000

Land 178,000

Buildings 125,000

Less Accumulated Depreciation (120,000)  

Total Land and Buildings 183,000

Total Assets: 807,000  

Liabilities

Current Liabilities

Expense Payable 20,000

Accounts Payable 302,000

Total Current Liabilities  322,000

Long-Term Borrowings  139,000  

Owner's Equity

Ordinary Share Capital  50,000

Retained Earnings  255,000  

Total Owner's Equity 305,000

TMH Ltd. Statement of financial performance for year ending 31 June 2009

$

Revenue 330,000

Cost of sale (170,000)

 Gross profit 160,000

Expenses (14,000)

Profit before tax 146,000

Dividend paid (67,000)

Retained profit for the year 79,000

Retained profit b/d 176,000

Retained profit C/D 255,000

The management goal to increase sales by at least 5% was exceeded since the sales increased from 46,000 to 330,000

The management goal to reduce liabilities by 5% was not achieved since liabilities increased from 460,000 to 783,000

Assessment questions:

1. In your own words, describe responsibility accounting?

It's an accounting system that tracks and reports cost, expenses and revenues by area of responsibility

2. Detail 4 different types of budgets, and their purposes.

• Master budget- It combines all the functional budgets within an organization and it is useful in ensuring that all individual budgets are consistent with each other.

• Cash budget- Is a plan of the total inflows and the total outflows for a given period.

• Operational budget- This budget covers revenues and expenses surrounding the day to day business of a company

• Flexible budget- Is a budget that is designed to change in accordance  with level of activity attained  

3. What information would you require to plan and prepare a budget for a new business? Detail where this information would come from.

Income and expenditure information- This can be obtained from the income and expenditure proposals

Profit planning information-This information makes it possible to determine how to arrange budgets so that maximum profit can be achieved.

4.  Describe what external factors should be taken into consideration when planning and preparing a budget.

State legislation

Labor market

5. What are the financial reporting cycles relevant to your Industry?

The industry's fiscal year financial cycle begins on July 1st and ends on June 30th

6.  Describe 2 different capital investment evaluation techniques

Net Present Value (NPV)-It is the difference between the present value of cash inflows and present value of cash outflows. The method recognizes if cash flow arising at different period are comparable when their present value is determined

Pay Back Period (PBP)-It is the duration taken by a project to generate cash flow sufficient to recoup itself

7.  What steps would you take to effectively implement the budget into a team Environment?

1. Set budget objectives- Clearly describe the objectives to be attained during a particular period of time before making the budget

2. Formulate a budgetary committee- These committee facilitates in securing participation of personnel  in the preparation and implementation of the budget

3. Define the budget centers- These are centers in an organization for which the budget is prepared

4. Prepare a budget manual- This is asset of instructions used in an organization to prepare budgets

5. Appoint a budget controller-This is an officer who gives useful advice and helps in construction and implementation of budgets

6. Determine the budget period- Determine the duration for which the budget  will be used

8.  What are INCOTERMS? Describe the following INCOTERMS codes.

These are terms used to define the obligations of the seller and buyer in the movement of goods from one person to another. The terms explain which party is responsible for the costs and risks at each stage of the goods movement

•   Departure (Group E)

FCA – Free Carrier- This term should be used for containerized goods delivered to a carrier at an inland container terminal. The seller delivers goods to the carrier acting on behalf of the buyer at the seller's premises or another named place  

•   Main Carriage Paid By Seller (Group C)

CIF - Cost, Insurance And Freight- Is a trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain the goods from the carrier

• Arrival (Group D)

DAF – Delivered At Frontier- The term means that the seller fulfils his obligation to deliver when the goods have been made available, cleared for export at the named point and place at the frontier (Lucia 2012)

9.  What is the trades practice Act?

It is a law that deals with product safety, price monitoring and industry codes of practice. It aims at preventing unethical practices in the market place.  

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