Robert Kennedy College

University of Cumbria
MBA in Leadership and Sustainability

Interim Assessment
Finance management
Start and End Date: (2 Sep 2019 – 24 Nov 2019)

Supervisor

Prof. David Duffill

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Contents
1. Executive Summary ................................................................................................................. 3
2. Main Report ............................................................................................................................ 4
2.1. Summary of assumptions ................................................................................................. 4
2.2. Break-even analysis .......................................................................................................... 5
2.3. Profit & Loss of for the first year in operation .................................................................. 8
2.4. Balance Sheet for the first year in operation .................................................................. 13
2.5. Monthly cashflow for the first year in operation ............................................................ 16
2.6. Annual cashflow thereafter ............................................................................................ 19
2.7. Conclusion and Recommendations ................................................................................ 20
3. Critical reflection ................................................................................................................... 20
4. List of Reference .................................................................................................................... 20

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 1. Executive Summary
This report covers the assessment of Hattie new venture. The paper includes a summary of Commented [GLN1]: Will need to add few sentences to
describe the venture.
assumptions, a break-even analysis, a profit and loss statement for the first year in operation.

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 2. Main Report
2.1. Summary of assumptions
In this article, the estimations and calculations are made with the following assumptions:
Item Unit Value Details
The conversion of transaction value and price in
Exchange rate $U/£ 0.022 Uruguay Peso ($U) to Sterling Pound (£) is
assumed to be fixed at 0.022
It is assumed that the value of the exclusive right
Exclusive right cost £ 450,000 for buying geodes from Uruguay at 45 percent
discount is £450,000
It is assumed that both tangible asset and
Tangible and
intangible assets would only be useful for 6
Intangible asset useful years 6
years and the salvation value at the end of the
life
period for the assets are zero.
Because the exclusive right requires the upfront
Loans or long-term payment worth the entire retirement sum of
£ 40,000
liability Hattie, it is assumed that Hattie would need to
borrow all the available potential funding
Repayment plan for It is assumed that the loan would be repaid in
the long-term liability £ 8,000 five instalments at the beginning of the 2nd, 3rd,
per annum 4th, 5th, and 6th year.
It is assumed that income tax would be paid in
arrears in the first month of the year following
the end of the accounting year.
Income tax % 28 Besides, tax income expense would be applied
only when profit before tax is positive.
Otherwise, it is assumed that the project is not
subjected to tax.

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 Rent is £300 and is paid at the beginning of
every month whereas the 3-months-worth-rent
Rent and deposit £ 300
deposit or £900 would be repaid in full by the
end of the 6th year in operation.
It is assumed that the manager/ owner of the
Manager monthly project, Hattie, aside from the profit, would
£ 1,500
compensation receive a monthly salary of £1,500 including
employer’s social charges Commented [GLN2]: Conflict with this - She believes that
two part-time students could run the geode operation at a
Table 1: List of assumptions total cost to her (including employer’s social charges) of £
1,500 per month
2.2. Break-even analysis
From the given information in the project and the assumption above, the break-even for geodes
sale in the UK would be calculated as follow. The calculation includes both the contribution of sale
of Cabinet to Ian and the contribution of sale on the internet. In addition, the figure for the sale of
the geodes and the geodes in the cabinet in the calculation is at full demand (i.e. 750 kg a month
for geodes and 6 cabinets a month or 9 kg a month). Such consideration would be helpful in case
Ian want to import more cabinets from Hattie in the future. Commented [GLN3]: Adding citation from the book plus
formula to calculate variable cost
The variable cost for the sale of geodes on the internet and the sale of cabinet to Ian:
- For the sale of geodes on the internet: Commented [GLN4]: Where does the calculation come
from?
Variable cost item Unit Calculation
Purchasing cost of geodes £ per kg = 350 ∗ 0.022 ∗ (1 − 0.45) = 4.235
Freight cost of geodes from Uruguay £ per kg = 200 ∗ 0.022 = 4.4
Shipping & Packaging cost in the UK £ per kg 5.5
Total £ per kg 14.135
Table 2: Variable cost per unit for geodes sale on the internet Commented [GLN5]: All tables should be captured from
Excel file as image, no need to use the Word formula
- For the sale of cabinet to Ian: functions
Commented [GLN6]: Need to explain about the
Variable cost item Unit Calculation calculation? 1-2 sentence(s) should be fine

Purchasing cost of geodes £ per cabinet = 4.235 ∗ 1.5 = 6.353

Freight cost of geodes from Uruguay £ per cabinet = 4.4 ∗ 1.5 = 6.6
Cabinet cost £ per cabinet 7

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 Total £ per cabinet 19.9525
Table 3: Variable cost per unit for cabinet sale
The ratio for the sale of geodes and the cabinet per annum at full demand is: Commented [GLN7]: Need more implications

Unit Percentage
Sale of geodes on the internet 750 99.21%
Sale of cabinet to Ian 6 0.79%
Total 756 100.00%
Table 4: The ratio between the sale of geodes on the internet and the sale of cabinet
The weighted average selling price and weighted average variable expenses for the sale of geodes
on the internet and the sale of cabinet to Ian:
Item Weighted average Commented [GLN8]: How to calculate this?

Selling price Geodes £35

£35.08
Cabinet £45
Variable expense Geodes £14.135
£14.18
Cabinet £19.9525
Table 5: Weighted average selling price and variable expense
Including the exclusive rights, the cost for the special jig and tools, the market study, and the
website design, total fixed investment is:
Fixed cost item Unit Calculation
Exclusive right £ 450,000
Special jig and tools £ 3,500
Market study £ 3,000
Website design £ 4,000
Total £ 460,500
Table 6: Fixed cost investment required for the project
The break-even point for the project would be at:
460,500 Commented [GLN9]: From where you have this formula?
𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 = = 22,035.40 Citation needed
35.08 − 14.18
- For the sale of geodes on the internet: 22,035.40 * 99.21% = 21,861 kg

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 - For the sale of cabinet to Ian: 22,035.40 * 0.79% = 175 cabinets
In other words, at the assumed full demand, the project requires close to 2.5 years to break-even.
Though, it should be reminded that such estimation fails to take into account non-variable cost
and uncertainties during the project duration.

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 2.3. Profit & Loss of for the first year in operation
For the first year, as it takes four weeks for geodes to be imported and shipped from Uruguay to the UK, the orders are made in the
beginning of the month and arrived by the ending of the month. This procedure also satisfies the condition of maintaining a minimum
stock of one month’s worth of sales. Consequently, there should be neither sales of geodes on the internet nor sales of cabinet for Ian
in the first month in operation.
SALES BUDGET OF GEODES ON THE INTERNET AND OF CABINETS FOR IAN
Month 1 2 3 4 5 6 7 8 9 10 11 12 Annual
Budgeted
- 50 120 190 260 330 400 470 540 610 680 750 4,400
unit sales
Selling
price per 35 35 35 35 35 35 35 35 35 35 35 35 35
unit
Geodes
- 1,750 4,200 6,650 9,100 11,550 14,000 16,450 18,900 21,350 23,800 26,250 154,000
revenue
Budgeted
- 6 6 6 6 6 6 6 6 6 6 6 66
unit sales
Selling
price per 45 45 45 45 45 45 45 45 45 45 45 45 45
unit

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 Cabinet
- 270 270 270 270 270 270 270 270 270 270 270 2,970
revenue

Total
- 2,020 4,470 6,920 9,370 11,820 14,270 16,720 19,170 21,620 24,070 26,520 156,970
Revenue
Table 7: Sales and Revenue in the first year in operation
Given above sales, revenue, and the variable cost for the sale of geodes on the internet and the sale of cabinet to Ian in the break-even
analysis, the cost of goods sold in associated with the sales are estimated as below: Commented [GLN10]: Explanation about how to calculate
COGS budget
COST OF GOODS SOLD (COGS) BUDGET
Month 1 2 3 4 5 6 7 8 9 10 11 12 Annual
Geodes
- 50 120 190 260 330 400 470 540 610 680 750 4,400
sale
Geodes
variable 14.135 14.135 14.135 14.135 14.135 14.135 14.135 14.135 14.135 14.135 14.135 14.135 14.135
cost per kg
Cabinet
- 6 6 6 6 6 6 6 6 6 6 6 66
sale
Cabinet
variable
19.953 19.953 19.953 19.953 19.953 19.953 19.953 19.953 19.953 19.953 19.953 19.953 19.953
cost per
unit

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 COGS - 826 1,816 2,805 3,795 4,784 5,774 6,763 7,753 8,742 9,732 10,721 63,511
Table 8: Cost of goods sold in the first year in operation
Aside from the COGS, budgeted income statement includes credit card expenses, rent, and salaries for operating expense items. As
stated, credit card expense is charged at 1.2 percent per sale. Rent and salaries are paid on monthly basis.
OPERATING EXPENSES
Month 1 2 3 4 5 6 7 8 9 10 11 12 Annual
Credit - 21 50 80 109 139 168 197 227 256 286 315 1,848
card
expense
Rent 300 300 300 300 300 300 300 300 300 300 300 300 3,600
Salaries
- Geodes 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000
- Cabinet 200 200 200 200 200 200 200 200 200 200 200 200 2,400
- Manager 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000
Total 3,500 3,521 3,550 3,580 3,609 3,639 3,668 3,697 3,727 3,756 3,786 3,815 43,848
Table 9: Operating expense in the first year in operation

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Furthermore, from the assumed useful life of tangible asset and intangible assets and the assumed
exclusive right value, the project profit would be subjected to the following depreciation and
amortization cost per annum: Commented [GLN11]: Requote about 6 years of
depreciation
Item Unit Formula Value

Depreciation per annum £ = 3,500⁄6 583

Amortization per annum £ = 450,000⁄6 75,000

Table 10: Depreciation and Amortization for the project

Also, at 7 percent interest per annum and outstanding loans at £40,000, the first year of the
project would see interest expense per annum at £2,800. Prepaid market study of £3,000.00 is
included as an extraordinary item. The first year P&L of the project would be as follow:
Items Value Percentage
Unit: £
Revenue 156,970 100.00%
- Cost of goods sold 63,511 40.46%
Contribution Margin 93,459 59.54%

- Credit card expenses 1,848 1.18%

- Rent 3,600 2.29%
- Salaries 38,400 24.46%
Net operating income 49,611 31.61%

- Interest income - -
- Interest expense 2,800 1.78%
- Depreciation & Amortization 75,583 48.15%
Income before tax (28,772) -18.33%

- Tax expense - -

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 Income from continuing operation (28,772) -18.33%

- Extraordinary item 3,000 1.91%

Net income (31,772) -20.24%
Table 11: Profit & Loss for the first year in operation
In a glance, due to early low sale, the first year in operation suffers a considerable loss. While net
operating income is positive at 31.61 percent and contribution margin is at a significant figure of
59.54 percent, depreciation and amortization take all the potential revenue. Thus, unless the
demand at full level is as market study proposes, the project is not profitable.

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 2.4. Balance Sheet for the first year in operation
Inventory requires minimum stock level at a month worth of goods. Therefore, desired ending inventory should always be at the
minimum level of coming month sales demand. Materials in stock include only geodes. The cabinet is purchased on demand. There is
no requirement to have minimum level of storage for cabinet which solely provides Ian.

Month 1 2 3 4 5 6 7 8 9 10 11 12 Annual

Budgeted
unit sales
of geodes - 50 120 190 260 330 400 470 540 610 680 750 4,400
on
internet
Budgeted
unit sales
- 9 9 9 9 9 9 9 9 9 9 9 99
of geodes
for Ian
Add
desired
59 129 199 269 339 409 479 549 619 689 759 759
ending
inventory
Total
59 188 328 468 608 748 888 1,028 1,168 1,308 1,448 1,518
needs

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 Less
beginning - 59 129 199 269 339 409 479 549 619 689 759
inventory
Required
59 129 199 269 339 409 479 549 619 689 759 759 5,258
purchases
Table 12: Purchasing plan for the project in the first year in operation
By the end of the accounting period, the ending stock level should be at the desired ending inventory or 759 geodes. The purchasing
cost per geodes include price of geodes in Uruguay including discount and the freight cost:
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 759 ∗ £8.635 = £6,554.00
Meanwhile, account receivable should be positive as geodes sales on the internet is on credit. The credit is remitting the monthly total
to Hattie two weeks after the end of each calendar month. Thus, account receivable is equal to the revenue of geodes sale on the
internet in the ending month:
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 = 750 ∗ £35.00 = £26,250.00
Prepaid expense is the deposit set out from the beginning of the accounting year. Whereas, non-current asset includes both the
intangible asset (exclusive right) and the tangible asset (the jig and the tools).

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Including the long-term loans figure, the capital stock, and the retained earnings, the balance
sheet of the project in the first year in operation is as follow:
Items Value
Unit: £
Asset
Cash 46,607
Accounts receivable 26,250
Inventory 6,554
Prepaid expenses 900
Intangible asset 450,000
- Accumulated amortization (75,000)
- Cost less amortization 375,000
Property and equipment 3,500
- Accumulated depreciation (583)
- Cost less depreciation 2,917
Total Asset 458,228
Liabilities and Stockholders' Equity
Accounts payable, purchases -
Long-term loans 40,000
Capital stock 450,000
Retained earnings (31,772)
Total liabilities and stockholders' equity 458,228
Table 13: Balance Sheet for the first year in operation

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 2.5. Monthly cashflow for the first year in operation

Month 1 2 3 4 5 6 7 8 9 10 11 12 Annual
Cash balance 450,000 28,591 23,909 19,958 17,438 16,350 16,692 18,466 21,671 26,307 32,375 39,873 450,000
Add
collections
- 270 2,020 4,470 6,920 9,370 11,820 14,270 16,720 19,170 21,620 24,070 130,720
from
customers
Total cash
450,000 28,861 25,929 24,428 24,358 25,720 28,512 32,736 38,391 45,477 53,995 63,943 580,720
available
Less Disbursements
Exclusive
450,000 - - - - - - - - - - - 450,000
rights
Merchandise
509 1,156 1,760 2,365 2,969 3,574 4,178 4,783 5,387 5,992 6,596 6,596 45,865
purchases
Packaging &
- 275 660 1,045 1,430 1,815 2,200 2,585 2,970 3,355 3,740 4,125 24,200
Shipping
Credit card
- 21 50 80 109 139 168 197 227 256 286 315 1,848
expenses
Rent 300 300 300 300 300 300 300 300 300 300 300 300 3,600
Deposit 900 - - - - - - - - - - - 900
Salaries 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 38,400
Equipment
3,500 - - - - - - - - - - - 3,500
purchases

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Market
3,000 - - - - - - - - - - - 3,000
study
Tax expense - - - - - - - - - - - - -
Total
Disburseme 461,409 4,952 5,971 6,990 8,008 9,027 10,046 11,065 12,084 13,103 14,122 14,536 571,313
nts

Excess (11,409) 23,909 19,958 17,438 16,350 16,692 18,466 21,671 26,307 32,375 39,873 49,407 9,407
Financing:
Borrowings 40,000 - - - - - - - - - - - 40,000

- - - - - - - - - - - - -
Repayments
Interest
- - - - - - - - - - - 2,800 2,800
expense
Total
40,000 - - - - - - - - - - (2,800) 37,200
financing

Cash
balance, 28,591 23,909 19,958 17,438 16,350 16,692 18,466 21,671 26,307 32,375 39,873 46,607 46,607
ending

Table 14: Monthly cashflow for the first year in operation

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 2.6. Annual cashflow thereafter
Year 1 2 3 4 5 6
Cash balance 450,000 46,607 180,176 295,828 412,041 528,813
Add collections from 130,720 318,240 318,240 318,240 318,240 318,240
customers
Total cash available 580,720 364,847 498,416 614,068 730,281 847,053

Exclusive rights 450,000

Merchandise purchases 45,865 79,152 79,152 79,152 79,152 79,152
Packaging & Shipping 24,200 49,500 49,500 49,500 49,500 49,500
Credit card expenses 1,848 3,780 3,780 3,780 3,780 3,780
Rent 3,600 3,600 3,600 3,600 3,600 3,600
Deposit 900 - - - - (900)
Salaries 38,400 38,400 38,400 38,400 38,400 38,400
Equipment purchases 3,500 - - - - -
Market study 3,000 - - - - -
Tax expense - - 18,476 18,476 18,476 18,476
Total Disbursements 571,313 174,432 192,907 192,907 192,907 192,007

Excess 9,407 190,416 305,508 421,161 537,373 655,046

Financing:
Borrowings 40,000 - - - - -
Repayments - 8,000 8,000 8,000 8,000 8,000
Interest expense 2,800 2,240 1,680 1,120 560 -
Total financing 37,200 (10,240) (9,680) (9,120) (8,560) (8,000)

Cash balance, ending 46,607 180,176 295,828 412,041 528,813 647,046

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2.7. Conclusion and Recommendations

3. Critical reflection

4. List of Reference

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