Cash Flow for Worplestrop Partnership - Essay Example

Unit break-even for the year 2012

Average Annual Fixed Cost/ (Average Per Unit Sales Price - Average Per Unit Variable Cost)

Fixed costs= (direct labor +supervision + office staff+ managerial)

   550,033   =33+130,000+120,000 + 300,000

Variable costs = production overheads + production person-hours + sales overheads + other office                                overheads

        100,900   = 50,000 + 900 + 18,000 + 32,000

Therefore: average annual fixed costs = 550,033/ 12= 45836.08

                   Average per unit sales = 75000/80= 937.5

                  Average per unit variable cost = total variable cost / number of units/12

                                                                      =100900/80/12= 105.10

Break even = 45836.08/ (937.50-105.10)

                      = 55 units

Sales break even for the year 2012

Annual Fixed Cost/1 - (Average Per Unit Variable Cost ÷ Average Per Unit Sales Price)

 =550033/ 1- (105.10/937.5)

=550033/1-0.1121

=550033/0.8879

=619476.29 £

Sensitivity of the figures to the key estimates

The estimated figures show a positive increase in both the expenses and incomes. For example on the sales estimates there is a gradual increase in the number of units to be sold annually. This is not reflected in the other expenses. For example it is assumed that the variable costs are not changing with the increase in sales. Other factors not considered include market trends, additional investments, depreciation of the cars. Too the interests on the borrowed capital are assumed that they will remain unchanged for the due period. There should be a provision for such changes as the global economy is fluctuating. Also there are provisions for bad debts. Everything is assumed to a clear cut transaction.

Recommendations

The company therein is sales oriented. It projects a sharp increase in sales without putting into focus the other internal and external factors. The company therefore change this trend and focus on both production and cost reduction.