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Financial Plan Production Cost Analysis


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Published in: Business, Economy & Finance

Financial Plan Production Cost Analysis

  1. 1. FINANCIAL PLANNING Financial plan contains the sets of financial statements that predict the resource implications of decision making in business For instance, short term and long term financial planning. Our company financial plans have been made out for 3 years plans forecast to suit the marketing strategy. In the first year, we will manufacture the product through the vendor and distributing the product starting in the week 6 of manufacturing and forecasting sales in the week 6 of sales. Our company focus is England as a target market for all 3 years plus having the product advertised and sells through the internet world wide at the same time. Company target for the first year sales is expected to gain 3000-5000 units will be sold. Upon successful sales in the first year, we till then expanse the quantity of the products and is expected will increasing the sales significantly. The sales will continuously growing in the next year of 2011 and during this year we are expecting the total products will be achieved around 5000-8000 units. By the year 2012, it is forecasted that we will distributing the product much higher than the previous year and is expected to gain about 8000-10,000 units respectively. Product Cost for Each Unit Production Cost per Unit £35 (Including raw material, taxes, shipping & vendor cost) Retail Price £90 Company Profit £55 Expenditure : 1) Premise / Building: The rental cost of the premises will be £600 per month. We will occupy 1 office at Bristol for our head quarters office. We choose this location due to port’s area where it is a very strategic location so that the shipping activity will be easier to handle. Total rent: 12months x £600 = £7,200 per annum
  2. 2. 2) Office facilities: In the first month basis, we estimated to spend £15,000 for office renovation and facilities. For the facilities, we will buy all stuff need for the office such as furniture and renovation is (£8,500), and equipments (£6,500). Total Estimation Cost is £15,000. (This cost will be spent during the startup year in the first year of company establishment only) 3) Power Electricity/Gas & Telephone Bills For billing facilities, we’ve decided to subscribe under (BT’s) Business Package, includes calls and internet access (Broadband). Total cost including lighting, heating, air-conditioning and other’s electrical consuming bills is estimated will be not more than £2000 per month. Estimated power & telephone bills consumption is £24,000 per annum. 4) Insurance: Insurance costing for covering the premise is very important. Usually there must often have plate glass insurance for office in addition to general business insurance. Total of insurance is £2,500 per annum. 5) Miscellaneous: Includes office supplies, stationary, paper, rates, cleaning, etc. is estimated of £2,000 per annum 6) Marketing In order to bring our products to the eyes of the world, we've chosen to promote our products through the internet via our company website. At the same time we will also make an advertisement through television, radio and trip tour. Hence, we've decided to put a budget around £9,000 for each year Total marketing budget will be of £9,000 per annum. 7) Raw Material The raw material for a unit product has cost of £32.80. This includes the components to be installed into the product itself. The cost of raw material is quite low because we order the parts from China which is cheaper and with a good quality as well.
  3. 3. 8) Shipping Seems that we are sourcing, producing & assembling the products through vendor in China, there will be highly necessary for the shipping to be well considered. Moreover, we’re also selling the products worldwide through the internet and it acquired shipment for each unit sold. After well consideration, we chose to subscribe shipment from It does provide the cheapest shipment for importing and exporting between UK & China so far. Importing: From China to UK – £0.65 per unit Delivery Service to: Within Europe - £0.50 per unit Worldwide - £0.80 per unit 9) Sum Payable for Vendor Services & Taxes Vendor in China Vendor cost per unit : £1.25 (12.04 Chinese Yuan) Taxes per Unit (0.86%) : £0.30 Total vendor service & taxes per unit = £ 1.55 10) Staff Wages: Position Person(s) Salary per month (£) Salary per annum (£) Manager 1 £3,200 £38,400 Assistant Manager 1 £2,800 £33,600 Senior Engineer 1 £2,500 £30,000 Junior Engineer 1 £2,200 £26,400 Technician 1 £1,600 £19,200 Administrative Officer 1 £1,200 £14,400 Receptionist 1 £900 £10,800 (£2,000 per person) Marketing 2 £48,000 £4,000 Accountants 1 £2,000 £24,000 IT & Software Development 1 £ 1,800 £21,600 £ 266,400 TOTAL Total staff is 12 persons. Total staff wages is £266,400
  4. 4. 5.3. Financial Considerations The Company’s start up costs will be £350,000. Owners equity will be provide £150,000 and another £200,000 will consist of long-term loans. The majority of the start-up costs will consist of rent, research and development, initial stock, and a strong cash account. Breakeven analysis Fixed Costs are business expenses that are not dependent on the activities of the business. They tend to be time-related, such as salaries or rents being paid per month. In another hand, variable costs are expenses that change in proportion to the activity of a business. In other words, variable cost is the sum of marginal costs. It can also be considered normal costs. Along with fixed costs, variable costs make up the two components of total cost. Our company fixed costs and variable costs are:- Fixed Cost Amount Premise / Building £ 7,200.00 Office facilities £ 15,000.00 Power & Telephone Bills £ 24,000.00 Insurance £ 2,500.00 Miscellaneous £ 2,000.00 Marketing £ 3,000.00 Staff Wages £ 266,400.00 Depreciation* £ 6,750.00 Total £ 326,850.00 £ 6,750.00 Depreciation 45% (Office Facilities) Variable Cost Amount Shipping £ 0.65 Vendor Services & Taxes £ 1.55 Raw Material £ 32.80 Total £ 35.00 Breakeven Analysis Fixed Cost £ 326,850.00 Variable Cost/unit £ 35.00 Selling Price/unit £ 90.00 Contribution £ 55.00 *Selling Price - Variable Cost Contribution to Sales Ratio £ 0.61 *Contribution/Sales Ratio Breakeven Quantity 5,943 *Total fixed cost / (Selling Price/unit - Variable Cost/unit) *Total fixed cost / Contribution to sales ratio Breakeven Revenue £ 534,845.45
  5. 5. Breakeven Analysis shows Digital Experts ltd. will be able to make a steady profit by the 3rd Quarter of 2011. The break-even point is only 5943 units per month, while projected sales are one to three times from that figure. Production Cost Analysis (Year 2009) Total Requirements (Units) 5,000 Number of Vendors 1 PRICES AND DELIVERY COSTS IN UNITS Vendor Vendor Bid Price Delivery Cost/Unit Tax/Unit Total Price/Unit £ 35.00 1. Vendor £ 32.80 £ 0.65 £ 1.25 £ 0.30 Average Delivered Price Per Unit £ 35.00 ALLOCATION OF ORDERS AND COSTS Actual Delivered Amount Vendor Order Price/Unit of Order Vendor 5,000 £ 35.00 £175,000.00 Total Amount of Order £175,000.00 SUMMARY Total Vendor Costs £ 6,250.00 Total Bid Price £164,000.00 Total Cost of Order £175,000.00
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