ACC4A8 Business Proposal, Plan and Budgeting Essay
ACC4A8 Business Proposal, Plan and Budgeting Essay
Introduction
This business plan contains a detailed business proposal to manufacture and sell leather shoes. Footwear is one of the most demanded and best-selling product in the globe since every human being needs it. Every class of human beings has that shoes they go for. According to IBIS world (2020), footwear industry in UK has grown by 13%, and is set to grow by 3.6% CAGR annual pace that is set to continue on average until 2021. Out of this, the largest segment is the leather footwear where it had over £ 7.9 billion contribution volume in 2018, which is almost half of the total £15 billion revenue footwear market in UK as shown below,
About the Business Entity.
The business structure will be a public limited company, specialized in manufacturing and production of Leather shoes.
The two main material component will be;
- Leather (Buffalo Leather), and
- Sole (PVC sole).
1. Table of Assumptions.
|
Item |
Cost |
Basis of Assumption |
|
Raw materials: 1. Leather 2. Sole |
£3.1 |
The price of pure Buffalo leather varies between £1.75 and £7.60 when bought in bulk of 10,000 SQ feet, (Alibaba UK, 2020). This depends on color and texture of the material. Therefore, the standard material required for a single shoe will be around £3.1 on average for the black material needed. |
|
£1.7 |
Sole prices depends on the type of shoes that are going to be made. The business will start by manufacturing basic official type of shoes. The soles costs around £0.4 to £3.0 for a single pair, (Alibaba UK, 2020). To achieve the desired design, the cost will therefore amount to £1.7, (3.4/2). | |
|
Labour |
£1.95 |
With all materials available, it will take Shoe design = 0.2hrs Assembling time =0.5hr Therefore a single shoe takes 0.7 direct labour hours Cost per hour = £2.8 Total labor cost =£1.95 (1.5 * 1.3) |
|
Just for stitching, a thread will be used to join the leather and the sole in the manufacturing process |
£0.55 |
From Alibaba, it cost between £2.0 to £3.0 for a 2k shoe stitching thread out of which a single shoe will take 1 meter which is a cost of £0.55 |
|
Sales |
£24 |
One shoe will start retailing at £24, a price within most of the official leather shoes costs from Alibaba. Half of the sales revenue will be collected per month and next in the following month. |
|
Sales volume will grow by 0.5% after introduction of the shoes in market, then will grow at 10% after marketing and then 15% during December and November peak season. | ||
|
A closing inventory of 85 units during first month will be required to sustain the sales where the growth in will increase at sales growth rate. |
2. Total Contribution Statement Budget and C/S ratio.
The budgeted sales for one pair of the shoes will be £24. From direct materials and labour. Total variable costs are expected are £8.8 per month. This is an average contribution of £15.20, (24-8.8).
The sales are expected to be 1500 units for the first month of January after which they are expected to increase by 5% in the first two month then increase at the rate of 10% in the next 7 month. Peak sales will be in the month of November and December where the growth rate will be 15%. Therefore, the total sales for the year is 29,955 units as shown in appendix one.
With a contribution of £15.20 per unit on every monthly sale, the total contribution for the year is therefore £455,319.09 (Appendix 1)
The contribution ratio is the cost per unit divided by selling price expressed as a percentage.
= (15.20/24)*100
=63.3%
3. Budgeted Capital Expenditure
For the business to be successful, the following items will be purchased and fitted in the warehouse at the commencement of business in January. They constitute the capital expenditure for the business;
4. Sales Budget.
With a selling price of £24, sales are expected to start at 1500 units for the first month of January after which they are expected to increase by 5% in the first two month then increase at the rate of 10% in the next 7 month. Peak sales will be in the month of November and December where the growth rate will be 15%. Therefore, the total sales for the year is 29,955 units, (Appendix 2). The projected sales and revenue graphs is as shown below,
5. Production Budget.
Units to be produced depends on sales. Therefore, production will be at the same rate of sales throughout the year. Closing stock for the first month will be 85 units which will increase at the same rate as the units produced, (Appendix 3). Production graph is as shown,
6. Purchases Budget
As shown in the purchases budget, (Appendix 4), total purchases cost for the year is £347,640.43 (£307,910.10 for Leather (buffalo) and £39,730.33 for Soles).
7. Direct Labour
The budgeted hours per unit is 0.7hrs at a cost of £3.0 per hour. Hence the total labour cost will be £62,905.93 for the year as shown by the graph, (Appendix 5)
8. Budgeted Overheads
The overheads cost include expenses for rent, product marketing, utilities (water and electricity), administration office expenses, expenses from bank, salaries and wages and depreciation on fixed assets. Total cost will be £133,622.00 as shown in the appendix (6) breakdown.
9. Cash Budget.
From the activities, the budgeted cash flow, as calculated on spreadsheet will look as follows,
10. Annual Income Statement (Budgeted)
From spreadsheet
11. Annual Balance Sheet (Budgeted)
From Excel,
12. Break-Even Point
The BEP (units) is 9,898units while the BEP (£sales) is £237,552.00 as shown below,
13. Margin of Safety.
Margin of safety for the year will be 23,211units, a sales revenue of £481,372.88 which is 66.96% as shown below, (Spreadsheet)
References
Alibaba UK Online Retail, 2020. Prices for buffalo leather skins, [Online] Available at: https://www.alibaba.com/showroom/buffalo-leather-goods.html [Accessed 5th February 2020].
Alibaba UK Online Retail, 2020. Shoe soles prices, [Online] Available at: https://www.alibaba.com/showroom/buffalo-leather-goods.html [Accessed 5th February 2020
Drury, C.M., 2013. Management and cost accounting. Springer.
IBIS World, 2020. UK footwear market. [Online] Available at: https://www.ibisworld.com/united-kingdom/market-research-reports/footwear-retailers-industry/ [Accessed 5th February 2020
Manasan, R.G., 2016. Assessment of the Bottom-up Budgeting process for FY 2016 (No. 2016-23). PIDS Discussion Paper Series.
Appendices
- Total Contribution Statement Budget and C/S ratio.
- Sales budget.
- Production Budget.
- Purchases Budget
- Direct Labour Budget
- Budgeted Overheads
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