Elegant Beauty Treatment - Case Study Example

Elegant beauty treatment al affiliation Introduction Elegant beauty hair treatment is a new hair care product in themarket; the product development is because of high-quality treatment products in the market. The market for the product is wide, and the product guarantees customer satisfaction. In the search of raw materials, production process, distribution, and marketing the company has to incorporate standard accounting, procedures that will ensure the product generate maximum profits for the company. In making a small pitch to the group of potential investors, I had to incorporate the Levis, reggae roots sauce story from the den of dragons. It implies that when one wants to invest, he must be able to convince and impress the ‘Dragons to get funding for the business? Keith Valentine (Levi Roots) is a Jamaican from Britain; he is also a chef and an entrepreneur. Levi roots entered the reality program dragons den after funding his reggae sauce. Levi and his children were selling the sauce at notting hill carnival where he sold 4000 bottles in 2006 (Shim 2007). To obtain funding from the ‘dragons den for the elegant beauty hair treatment, I had to come up with an excellent financial plan that will ensure maximized profits. The hair treatment product is one that ensures strong hair and saves the customers money. The budget for manufacturing the product amounts to $25000 in starting the year. In preparation for the plan, I had to create a marginal cost statement for the product per year and unit basis. Additionally, Cash Budget, Forecast income statement, and forecast balance sheet has to be incorporated in the plan. Marginal costing statement for elegant beauty treatment Marginal cost = Variable cost direct labor + Direct material + Direct expense + Variable overheads Elegant beauty hair treatment Marginal costing statement $ Year 1 $ Year 2 $ Year 3 $ Year 4 $ Year 5 Sales Revenue 50000 50000 50000 50000 50000 Less Marginal Cost of Sales Opening Stock (Valued @ marginal cost) 20000 25000 30000 30000 35000 Add Production Cost (Valued @ marginal cost) 10000 12000 15000 15000 17000 Total Production Cost 30000 37000 45000 45000 52000 Less Closing Stock (Valued @ marginal cost) 5000 70000 15000 10000 12000 Marginal Cost of Production 25000 30000 30000 35000 40000 Add Selling, Admin & Distribution Cost 10000 11000 10000 10000 10000 Marginal Cost of Sales 35000 41000 40000 45000 50000 Contribution 5000 5000 5000 5000 5000 Less Fixed Cost 2000 2000 2000 2000 2000 Marginal Costing Profit 28000 34000 33000 38000 43000 Elegant beauty hair treatment Cash Budget   January February March April May June July Aug Sep Oct Nov Dec Beginning cash $25,000 $55,000 -$24,000 $55,000 $55,000 $55,000 $25,000 $55,000 $25,000 $25,000 $55,000 $55,000 Sources of Cash                          + Cash sales  +10,000  +12,000 +15,000  +12,000  +12,000  +12,000  +10,000  +12,000  +10,000  +10,000  +12,000  +12,000  + Accounts receivable collected  +180,000 +185,000 +180,000 +185,000 +185,000 +185,000  +180,000 +185,000  +180,000  +180,000 +185,000 +185,000  + Asset sales  +30,000 0 +10,000 0 0 0  +30,000 0  +30,000  +30,000 0 0  = Total cash available  $245,000 $252,000 $181,000 $252,000 $252,000 $252,000  $245,000 $252,000  $245,000  $245,000 $252,000 $252,000 Uses of Cash                         - Direct materials -$87,000 -$91,000 -$99,000 -$91,000 -$91,000 -$91,000 -$87,000 -$91,000 -$87,000 -$87,000 -$91,000 -$91,000 - Direct labor  -19,000 -20,000 -23,000 -20,000 -20,000 -20,000 -19,000 -20,000 -19,000 -19,000 -20,000 -20,000 - Manufacturing overhead -29,000 -30,000 -34,000 -30,000 -30,000 -30,000 -29,000 -30,000 -29,000 -29,000 -30,000 -30,000 - Selling & administrative -35,000 -35,000 -38,000 -35,000 -35,000 -35,000 -35,000 -35,000 -35,000 -35,000 -35,000 -35,000 - Asset purchases -20,000 0 -50,000 0 0 0 -20,000 0 -20,000 -20,000 0 0 - Dividend payments 0 -100,000 0 -100,000 -100,000 -100,000 0 -100,000 0 0 -100,000 -100,000 = Total uses of cash -$190,000 -$276,000 -$244,000 -$276,000 -$276,000 -$276,000 -$190,000 -$276,000 -$190,000 -$190,000 -$276,000 -$276,000 Net Cash Position $55,000 -$24,000 -$63,000 -$24,000 -$24,000 -$24,000 $55,000 -$24,000 $55,000 $55,000 -$24,000 -$24,000 Elegant beauty hair treatment Income Statement Forecast Revenue 100,000 Money from selling the treatment, also called sales, turnover Cost of sales 45,000 Cost of the treatment sold, materials, labor Gross margin 55,000 Gross profit for selling goods Operating expenses 30,000 R&D, Sales & Marketing, General & administration costs Depreciation 10,000 Expense of using long-term assets in production Operating income 15,000 Earnings before interest and tax Finance costs 5,000 Costs using debt to finance the production Income before tax 10,000 Income of the business before taxation Income tax expense 3,000 Taxation expense based on income Net income 7,000 Income left after paying all costs Elegant beauty hair treatment Forecast balance sheet Balance Sheet Forecast at 31 March 2015 Cash 50,000 Available cash Accounts receivable 280,000 What customers owe the company Inventory 20,000 Inventory held Current assets 350,000 Can be converted into cash in one year Long-term assets 450,000 Fixed assets less depreciation Total assets 800,000 account to be paid 150,000 Other liabilities 85,000 Amounts owed such as wages, tax, interest Current liabilities 235,000 Long-term debt 145,000 Total liabilities 380,000 Total amount owed Capital value 140,000 retained profits in the business 260,000 Total equity 420,000 Total invested Total liabilities and equity 800,000 Assets = Liabilities + Equity The major dispute against direct costing is that it understates the worth of ending stocks. It is factual that direct costing creates a smaller stock value. Proponents of costing argue that fixed manufacturing overhead is a factual production cost since it makes manufacturing possible. The effect on inventory value can be clearer if we make a hypothetical company that has only fixed manufacturing overhead and no variable costs at all. That is; the manufactured goods can be manufactured without any paid labor or any need to purchase raw materials (Shim 2007). Cash budget entails the use of cash in the future and the itemization of the projected sources. The budget ascertains whether elegant beauty company operations and other activities will generate enough cash to cover the projected cash needs if not; the company will need to look for additional sources of funding. The composition of cash budget emanates from other budgets. The outcome of the cash budget plays a major role in the financing budget. This itemizes debts, income and interest expense and investment (Guerard 2012). In elegant beauty treatment production, the cash budget mainly has two areas the source of cash and the use of cash. In the sources of cash, we have the beginning cash balance and the cash received from the product sales, the sale of assets, and the accounts receivable. In the use of cash section, we have the planned cash expenditures such as direct material costs, labor costs, selling and distribution costs and manufacturing overhead budget (Guerard 2012) If the cash budget indicates large balances of cash that are unusual, they must be dealt with in the financing budget. On the contrary, when the cash budget indicates negative balances, the financing plan shows the timing and the amount of any debt or equity required to cover the balance. The above cash budget indicates the payment of dividends is high at the end of the year, and this places the company in a negative cash position. Problems arise for lenders if they pay large amounts of dividends so the company should pay small dividends to the shareholders so that it can be able to avoid the negative cash position (Besley 2008). The profit and loss forecast is also a crucial part of the business plan financials. The income statement above indicates the financial performance of the company if the treatment is placed in the market. The projected income statement covered one year of production for the elegant beauty company. The importance of the statement is that it will assist in identifying the potential of the business to make profits in a certain period. The important figure in our case is the net income that in our case is $7000 (Guerard 2012). Elegant beauty treatment balance sheet indicates the forecasted financial position of the company at a specific time point. The balance sheet will guide me in identifying whether the need for working capital is growing and how the need should be funded. The company suppliers to decide on the terms of supply and giving credit will use the balance sheet. The forecasted balance sheet indicates the net assets and the cash position of the company. Taking clues from Levis investment ideas, a sound financial projection are crucial to getting funding from the dragons den. The highlighted financial statements show the far the treatment product will place the company when production and distribution commence. The projected financial statements in a growth stage business must follow established accounting principles pertinent to operating projects in the preparation of financial statements. In its balance sheet, the business must account cumulative net losses separately in the equity section. (Guerard 2012). In its income account, Elegant Beauty Company must report collective revenues and operating expenses from the inception of the project. Likewise, in the companys cash flow statement, it must report collective cash flows from the beginning of the venture. Its statement of stockholders equity should comprise the number of shares issued and the date of their issuance as well as the dollar amounts expected. References SHIM, J. K., & SIEGEL, J. G. (2007). Handbook of financial analysis, forecasting, and modeling. Chicago, IL, Wolters Kluwer/CCH. GUERARD, J. (2012). Introduction to financial forecasting in investment analysis. New York, Springer. BESLEY, S., & BRIGHAM, E. F. (2008). Principles of finance. Mason, Ohio, South-Western. Read More