BUSINESS PLAN TITLE: LUVUNO'S SOAP AND DETERGENTS

SHOP.

CANDIDATE NAME: CELESTINE MWACHIRO.

INDEX NO: 1061201236.

SUPERVISOR NAME: EDWIN KEMBOI.

INSTITUTION NAME: KENYA COAST NATIONAL POLYTECHNIC.

COURSE NAME: SCIENCE LABORATORY TECHNOLOGY.

COURSE CODE: 1904.

SUBJECT CODE:

PRESENTED TO: KENYA NATIONAL EXAMINATION COUNCIL.

SERIES: NOVEMBER 2022

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 DECLARATION
I hereby declare that a business plan is my own original work and that it has not been for award
of a degree or submitted by an institution.

Name.................................................

Signature...............................................Date......... .............

Supervisor Name.........................Date.................................

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 ACKNOWLEDGMENT
I wish to acknowledge the following people , parents and Edwin Kemboi who assisted me in
ensuring that the business plan report successfully done.

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 DEDICATION
I dedicate this business to almighty God for keeping me alive and letting me see this day for
giving me the strength and courage to embark into the business plan successfully complete it
and also my loving mother who paid my school fees to ensure that l was able to reach and attain
the level that I am.

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TABLE OF CONTENTS
DECLARATION .................................................................................................................................. ii
ACKNOWLEDGMENT...................................................................................................................... iii
DEDICATION..................................................................................................................................... iv
Executive summary ............................................................................. Error! Bookmark not defined.
CHAPTER ONE ................................................................................................................................... 1
1.0 Business description........................................................................................................................ 1
1.1 Business plan. ................................................................................................................................. 1
1.2 Business location and address. ...................................................................................................... 1
1.3 Form of the business ownership. ..................................................................................................... 1
1.4 Types of business. ........................................................................................................................... 2
1.5 Product and service ......................................................................................................................... 2
1.6 Justification of opportunity. ............................................................................................................ 2
1.7 Industry ........................................................................................................................................... 2
1.8 Goal/ objective of business ............................................................................................................. 2
1.8.2 Objectives .................................................................................................................................... 2
1.9 Entry and growth strategies. ............................................................................................................ 2
1.9.1 Entry plan..................................................................................................................................... 2
1.9.2 Growth plan ................................................................................................................................. 2
CHAPTER TWO. ................................................................................................................................. 3
2.1 Customers. ...................................................................................................................................... 3
2.1.2 Individual/households .................................................................................................................. 3
2.2 Market share/ size. .......................................................................................................................... 3
2.3 Competition. ................................................................................................................................... 4
2.4 Methods of promotion and advertisement. ...................................................................................... 5
2.4.1 Promotion .................................................................................................................................... 5
2.4 .1 Advertising. ................................................................................................................................ 6
2.5 Pricing strategy. .............................................................................................................................. 6
2.6 Sales tactic. ..................................................................................................................................... 6
2.7 Distribution strategy........................................................................................................................ 6
CHAPTER THREE .............................................................................................................................. 7
3.0 Organization and management plan. ............................................................................................... 7
3.1 Management team. .......................................................................................................................... 7
3.3 Described each of the stated above e.g. managing director. ............................................................ 7
3.1.2 Human resource manager. ............................................................................................................ 7
3.1.3 Marketing manager. ..................................................................................................................... 7

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3.1.4 Financial manager. ....................................................................................................................... 8
3.3 Recruitment, training and promotion. ............................................................................................. 9
3.3 Recruitment..................................................................................................................................... 9
3.3.2 Training. ...................................................................................................................................... 9
3.3.3 Promotion .................................................................................................................................... 9
3.4 Remuneration and incentives. ......................................................................................................... 9
3.4.2 Incentives ................................................................................................................................... 10
3.5 License. ......................................................................................................................................... 10
3.3.2 Permit......................................................................................................................................... 10
3.5.3 By law. ....................................................................................................................................... 10
3.6 support services............................................................................................................................. 10
3.6.1 Banking service.......................................................................................................................... 10
3.6.2 Insurance service. ....................................................................................................................... 10
3.6.3 Consulting service...................................................................................................................... 10
3.6.4 Legal service. ............................................................................................................................. 10
CHAPTER FOUR. ............................................................................................................................. 11
4.0 Production/operation plan. ............................................................................................................ 11
4.1 Production facilities and capacity. ................................................................................................ 11
4.1.1 Firm layout................................................................................................................................. 11
4.2 Production strategy. ...................................................................................................................... 12
4.3 Production process. ....................................................................................................................... 12
4.4 Production affecting operation. ..................................................................................................... 12
4.4.1 Health regulations ...................................................................................................................... 12
4.4.2 Safety ..................................................................................................................................... 12
4.4.3 Environment regulations. ........................................................................................................... 12
CHAPTER FIVE. ............................................................................................................................... 13
5.0 Financial plan................................................................................................................................ 13
5.1 Objectives of financial plan. ......................................................................................................... 13
5.2 Financial Assumption. .................................................................................................................. 13
5.1 Pre operational cost. ...................................................................................................................... 13
5.3 Pro- forma balance sheet. .............................................................................................................. 14
5.2.1 Luvuno's balance sheet as at 31st December 2022. .................................................................... 14
5.3 Working Capital. ........................................................................................................................... 15
5.4 CASHFLOW PROJECTION ........................................................................................................ 16
5.5 Pro forma income statements (Trading, profit and loss Account). ................................................ 18
5.6 Break even analysis ...................................................................................................................... 19

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5.7 Desired financing. ......................................................................................................................... 20
5.8 Capitalization. ............................................................................................................................... 20
5.9 Profitability ratio ........................................................................................................................... 20

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1.0 EXECUTIVE SUMMARY.

1.1 BUSINESS DESCRIPTION.

Luvuno detergent shop is the name proposed to this business and it is located at Kilifi along
kibaoni road near Kilifi township secondary school. The form of this business is sole
proprietorship because it has a low starting capital, easy decision making and it has few legal
formalities. The business is for selling laboratory detergent and all kind of chemicals

2.0 MARKET PLAN.

Luvuno detergent shop has several customers such as institution and hospitals. The business
has several competitors such as meneno detergent shop, kache lab detergent and Wachiru
detergent shop who have their strengths and weaknesses. The business has a market share 40%
as the start but as time continuous the business rise to the top. Luvuno detergent shop will
promote its business using modern advertisement and promotion it’s also employee sales
tactics and distribution strategy when there will be direct contact with customers.

3.0 ORGANISATION AND MANAGEMENT PLAN.

Luvuno detergent shop has an organization structure where it show managerial hierarchy. This
Organization structure it shows the top management where decision are made and flows
through downward up to the subordinate it also show the role their salary of each employee in
the business.

4.0 OPERATIONAL PLAN.

This chapter explain the operation of the business and how services will be offered together
with services delivery requirement the business has facilities which require repairs and
maintenance to keep the business running smoothly.

5.0 FINANCIAL PLAN.

The financial plan determines the requirements of the business performance. It also provides
proposals for sources and uses of funds. Further financial information is contained in Pre-
operational cost, working capital income statement, balance sheet, cash flow statements and
breakeven point.

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 CHAPTER ONE

1.0 Business description.

The owner of the business is Celestine Mwachiro 21 years old single from Kilifi County a
student at Kenya coast national polytechnic pursuing craft certificate in science laboratory
Technology.

1.1 Business plan.

Luvuno's detergent shop, reason for using this name is my second name and easy to mention
and remember it.

1.2 Business location and address.

The business will be locate at Kilifi County close to kilifi township secondary school

Diagram showing the location of the business.

LUVUNO
DETERGENT SHOP

KT SECONDARY

Klf
stage
NAIVAS STAGE

Main road KIBAONI

klf

1.3 Form of the business ownership.

The form of business is sole proprietorship reasons for accepted this form is as follows easy
to start because it require few legal formalities quick decision making, there is control over
business secrets, freedom of action at any time profits are entirely on the owner's hand.

Disadvantages

Unlimited liability may cause the owner to loosing personal property.

Limited capital may delay expansion; working for long hours may result to fatigue.

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1.4 Types of business.
The business will be start up, those products will come from the suppliers / manufacturer, they
supplier their product to the luvuno's detergent shop.

1.5 Product and service

The products that are going to be offer are soap less detergent and soapy detergent e.g. sanitizer,
jik e.t.c. Those goods will be packages, are flexible to all time to all weather conditions and
convenient.

1.6 Justification of opportunity.

The business will be conducted under the high level of security and suitable/ good
infrastructure is very high e.g. roads hospitals, electricity. These makes easy for transporting
of those products to the required areas.

1.7 Industry
The detergent shop belongs to the trade laboratory industries.

1.8 Goal/ objective of business

The business achievement is follows.

To generate revenue to the government to provide foreign exchange to the economy to create
job opportunity to the other people who are jobless to increase living standard of people, to
promote the development of the country through the production and provision of a large
quantity and variety of goods and services.

1.8.2 Objectives
The business achievement after short term is as follows the owner of the business achieves this
to maximize the profit to the business to increase sales to business to minimize the cost of the,
to minimize the risks accured in the business.

1.9 Entry and growth strategies.

1.9.1 Entry plan.

The business will take competitive advantages through lowering its prices so as to attract more
customers by reducing the expenses and cost involved in producing the goods to increasing its
advertising and sales promotion activities so as to attract more customers to develop customer
care service in order to improve good relations with the customers, to supporting more social
functions and activities such as sports in order to popularize the business and win more
Goodwill and support customers.

1.9.2 Growth plan

The business will expand when some of the profit will be used to increase the quantity of
detergent for sale i.e buying more stock of detergent products to increase the total amount of
money invested in the stock for sale. Open up other new branches of the business structure to
attract more customers.

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 CHAPTER TWO.

2.1 Customers.
The potential customers will be the users or the individuals in the business. The target of the
customers in the business will be 50,000 per day and the business allows all the customers of
the age 10yrs old and above. The attraction of customers in the business will be as follows by
lowering the prices of the goods/ products, through offering credit to the good customer,
offering after service such as to show the customer how to use the goods, by having good
communication to the customers. The goods are in higher quality and good appearance and
well packed and coloured, efficiency to all customers. The advertisement method like Radio,
TV.

2.1.2 Individual/households
These customers are those who buy the good direct to the business and use it to satisfy their
needs.

2.2 Market share/ size.

The amount of sales per year will be 60% profit earn / get per every years. That is minimum
target make for every year. In the where the business will be locating, there is 3 firms which
are selling the same products/similar goods that will be sold in that areas.

THE TABLE OF MARKET SHARE BEFORE PENETRATE.

NAME OF THE FIRM SALES SHARES

Maneno detergents shop 30000 30%

Kache lab shop 30000 30%

Wachiru soapless shop 40000 40%

THE TABLE OF MARKET SHARE AFTER PENETRATE

NAME OF THE FIRM SALES SHARES

Maneno detergent shop 30000 18.75%

Kache lab shop 30000 18.75%

Wachiru soapless shop 40000 25%

Luvunos detergent shop 60000 37.5%

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THE SALES AND SHARES ARE REPRESENTED BY THE PIE CHART

Sales

Luvuno
Wachiru
Kache
Maneno

2.3 Competition.
The factors that have contributed to the success of other shops will be analyzed. There will be
determination of fill of the gap of that area. The potential competitors will be determining with
their size in terms of their assets, sale volume and their market share. The strengths and
weaknesses of the competitors should be well determines the capital plans will be determine to
deal with the weaknesses.

The tables of competitors before penetrate.

Manenos shops Kaches lab Wachiru soapless

shop

Assets 15000 120000 100000

Sales volume 30000 200000 250000

Market share 40% 26.66% 33.33

Profit p.a 60000 50000 40000

No.of employees 3 2 1

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THE TABLE OF COMPETITORS AFTER PENETRATE

Manenos shop Kaches shop Wachirus shop Luvunos

detergent shop

Assets 150000 120000 100000 200000

Sales 30000 200000 250000 350000

Markets shares 27.27% 18.18% 22.72% 31.81%

Profit p.a 60000 50000 40000 80000

No.of 3 2 1 4
Eemployees

THE SALES AND SHARE ARE REPRESENTED BY PIE CHART

Column1

Luvunos
Manenos
Kache
Wachiru

2.4 Methods of promotion and advertisement.

2.4.1 Promotion
Product promotion providing information about the product to its prospective. The products
will be exists all the time at the market. The products will be fairly to all people who buy the
goods in the business.

Advantages of promotion.

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To inform the potential customers about the existence qualities

To convince or persuade existing customers to continue buy the products

To facilitate more sales revenue.

2.4 .1 Advertising.
The product will be advertising through public medium such as newspaper, radio and television
to make quick information to reach all the members of the public who are customers.

2.5 Pricing strategy.

The business will be measures the profit cost and revenue elements. The price will be well
calculated to avoid the effects of the quantity and quantity of the products the price will be
fairly to all customers to attract them to the business. The business will be offers credities to
known customers all the time and pay back in an appropriate time Those who will delay to
pay back the credities money will not able to get credit offers again in that business.

2.6 Sales tactic.

The business will sell the products direct to the customers. This able the able the seller if that
business interact direct with his/ her customers and communicate with them well to persuade
them to continue buy the goods to that business.

2.7 Distribution strategy.

The products will reach the customers through sales representative The business will use the
road as a means of transport, the cost of transportation per month should be at least 10,000.

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 CHAPTER THREE

3.0 Organization and management plan.

3.1 Management team.

The business will need the management team work for the proposing the business well, such
as Han resource manager managing director production manager and financial manager.

3.3 Described each of the stated above e.g. managing director.

Our management team is comprised of people with many years of experience in the long term
care provider and software development industries. Our philosophy is laser- like focus on the
customers’ needs. Part time positions staffing the customer support desk will be filled as needed
and reporting to the Director of operations.

3.1.2 Human resource manager.

The duties will be

Controlling all the activities of the organization.

Being responsible for staffing.

Planning work

Qualifications.

He /she should have a degree in masters

Should speak both English and Kiswahili.

He/she should have at least two experiences at managerial level.

3.1.3 Marketing manager.

Duties

He/she should listen to what people say about the product and apply remedies where necessary

Qualifications

Should pose a diploma in sales and marketing.

He/she should know how to speak English and Kiswahili.

He/ she should have one year experience.

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3.1.4 Financial manager.
Duties

He/ she will be keeping book of accounts.

Preparing payrolls and budgets.

Preparing financial report such as profit and loss account.

Qualifications.

Should pose a diploma in accounting.

Should have two years experiences.

Other personnel.

Table of other personnel.

Qualification Duties

Security officer KCSE certificate Premises security

Sales rep KCSE D and craft certificate Sales promotion

Security A certificate in secretarial

Organization chart.

MANAGING DIRECTOR

ASSISTANT DIRECTOR

FINANCIAL MANAGER MARKETING MANAGER PROCUREMENT MANAGER

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3.3 Recruitment, training and promotion.

3.3 Recruitment.
Managers and other staff will be recruited through word of mouth for personnel and recruitment
agencies for managers.

3.3.2 Training.
Newly employed staffs are training through the seminars and are trained by trainers from other
workshop managers so that enable the shop to get trained people.

3.3.3 Promotion.

The employees will be promoted according to the level of education and experience in various
fields. To this those who will have long time working for the business will also promoted.

3.4 Remuneration and incentives.

The firm policy on remuneration is to offer attractive salaries to the employees to motivate
them. The employees also will given some gifts at that business to be more motivated.

Table of Remuneration and incentives.

TITLE NO MONTHLY PAY ALLOWANCE TOTAL

MD 1 60,000 10,000 70,000

HR 1 40,000 5,000 45,000

MARKET 1 30,000 30,000 33,000

MANAGER

SECURITY 2 6,000 2,000 16,000

OFFICER

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3.4.2 Incentives
The allowance will be for those will be working overtime to motivate them also there will be
commission for goods sold above 80,000 per month; the commission will be 15% of goods
sold. Employees will be given tea and lunch daily.

3.5 License.
The business will not able to start without a license until the business gets the license from
licensing board which is the county council so that the business will provide revenue to the
government.

3.3.2 Permit.
The business will be get a permit from soap manufacturer department, the premises will be
open to the public, the business will get the permit before business startup immediately after
getting the county permits.

3.5.3 By law.
The business will need to comply with the by laws such as pay taxes to the government, The
business should follows the regulations legislation conditions of the government to pay taxes
every month, this enables the business to increase revenue to the government.

3.6 support services.

The business will require support services to enable it to carry its operation successful these
include:

3.6.1 Banking service.

The business will open an account that enable the business to save its profit. The types account
is KCB bank. The significance of the account enable the business money to be safe from theft
or incase of fire outbreak incurs.

3.6.2 Insurance service.

The business will be insured by the premium insurance company. The business will insure
against the products, employees and staff.

3.6.3 Consulting service.

The consult of the business give advice on the type, quality and nature of the products to be
sold, the consultant will be teachers and doctors.

3.6.4 Legal service.

Legal services are services that are allowed by law in any business. The legal services include,
handling legal document.

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 CHAPTER FOUR.

4.0 Production/operation plan.

4.1 Production facilities and capacity.

The facilities required will be an office, store, pickup and electricity.

Table

Item Quality Cost Capacity

Office 2 30,000 5 office

Store 1 10,000 Removable

equipments

Pick up 1 200,000 Cc 1800

Electricity 3phase 30,000 1000kw

4.1.1 Firm layout.

ENTRANCE
SECURITY OFFICE

MANAGEMENT

OFFICE

STORE

ACCOUNTANT

OFFICE

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4.2 Production strategy.
The business sold the goods to the hospitals and schools. The products will be interested that
they use them and co- friendly. The business sold the products through final consumers. Our
products are priced for unit and are considered "high end" shop solution. The production cost
per month will be well determined.

4.3 Production process.

The production of the business process is that the business will require a places or land to set
up the production unit. The business require machines such computer for storage of business
information and calculator for mathematical calculations which will all become capital
investment for the business.

4.4 Production affecting operation.

The production will be affect by the following factors such as suppliers, equipment, the need
for special parts and people who work at all points in the process problems with transportation
or inclement weather. The more variables there are, the greater the possibility of disruption to
the smooth operations of the business.

4.4.1 Health regulations.

Our vision is to be a global exemplar in public health and patient safety, enabled through and
at the forefront of innovation.

4.4.2 Safety.

The necessary measures that you would take or be followed to guard against physical injuries
workers is that wearing mask, and lab coat.

4.4.3 Environment regulations.

The regulation of pollution originating from SMEs is an important step in designing adequate
environmental policies and compliance assurance strategies for SMEs. When SMEs creates
little pollution, the legislation and compliance monitoring pressure on them could be dismissed.

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 CHAPTER FIVE.

5.0 Financial plan.

The main reason of preparing a business plan is to receive funds. The financial plan anlyzing
financial plan analyzing financial requirements or business and developing financial plans.

5.1 Objectives of financial plan.

Based on market research, we expect the business to begin growing at 45% per month for the
first 12 months, then at 90% for next two years Due to over low initial investment costs, we
can maintain the operations of the business with the cash buffer we can almost immediately
have from start-up. In addition, we will almost immediately have a positive cash flow, allowing
as the flexibility to cover to any unforeseen expenses.

5.2 Financial Assumption.

We have assumed no payroll expenses for the start up period. 100% of sales will be made on
credit , shop standard, although we do plan to sell some of our products ( mostly for product
promotion purposes today to the government agencies who usually demand substantially longer
payments terms, our major target group we remain commercial entities. To be flexible in
meeting the customer demand, we plan to maintain a minimal stock of the products at a rented
warehouse and dispatch it from once we make the decision to address additional market
segments, we will begin increasing our marketing and sales expenses to represent the expected
increase in costs associated with developing packaging, advertisement additional promotions
and creating awareness of our products in the differing markets.

5.1 Pre operational cost.

The cost incurred before starting a business includes the following items.

TABLE

Items Cost

Research/traveling 20,000

Designing 10,000

Licenses 10,000

Advertisement 5,000

Recruitment 20,000

Rent deposit 5,000

Utility bills 8,000

Total amount 78,000

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5.3 Pro- forma balance sheet.
A balance sheet is financial statement that shows the financial position of the business for a
certain period of time (usually one year).

5.2.1 Luvuno's balance sheet as at 31st December 2022.

Fixed. Assets Cost

Building at cost. 500,000

Land. 100,000

Motor vehicle. 200,000

Less depreciation. 180,000

Furniture and fittings 100,000

Less depreciation. 70,000

Total. 850,000

Current Assets.

Stock 20,000

Cash at bank 100,000

Cash at hand. 50, 000

Debtors. 10,000

Pre- payment. 5,000

Total. 185, 000

Less liability.

Creditors 7,000

Accrual. 5, 000

Back overdraft. 10,000

Total. 22,000

Working Capital

Financed by

Opening capital 200,000

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Add net capital. 20,000

Less drawings 5,000

Closing capital 8,000

Total. 330,000

5.3 Working Capital.

Working capital is the current assets - current liabilities.

I.e. WC = CA- CL.

Current Assets

Cash at hand. 20,000

Cash at bank. 100,000

Debtors. 50,000

Stock. 10,000

Total. 180,000

Less current liabilities.

Creditors. 7,000

Bank overdrafts. 5,000

Accruals. 10, 000

Total. 22,000

Working capital. 158,000

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 5.4 CASHFLOW PROJECTION
LUVUNO CASH FLOW PROJECTION FOR THE YEAR 2022

TABLES
Receipt January February March April May June July August September October November December
Loan 80,000 100,000
Sales 100,000 110,000 130,000 90,000 50,000 70,000 100,000 80,000 150,000 170,000 130,000 5,000
Debtors 20,000 15,000 25,000 30,000 20,000 35,000 10,000 4,000 2,000 2,300 1,700 3,000
Discount received 300 2,000 3,500 2,500 1,000 2,800 3,100 4,700 1,800 1,250 4,000 5,000
Total 203,000 127,000 158,500 122,500 71,000 107,800 113,100 88,700 153,800 173,350 135,700 113,000
Payements
Purchases 80,000 50,000 78,000 50,000 5,000 20,000 2,500 2,000 50,000 60,000 40,000 20,000
Salaries 50,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000
Creditors 8,000 1,000 3,000 5,000 2,000 10,050 3,000 10,000 2,000 8,000 5,000 1,500
Discount allowed 5,000 2,000 5,000 2,000 1,000 3,000 5,000 700 1,000 5,000 1,500 5,000
Total 153,000 113,000 146,000 117,000 68,000 93,000 70,500 70,000 113,000 133,000 106,500 86,500
Cash flow 50,000 14,000 12,000 5,500 3,000 14,800 45,100 18,700 40,800 40,550 29,200 26,500
Balanced b/d 50,000 64,000 76,000 81,500 84,500 99,300 142,400 16,100 201,900 242,450 271,650
Balancedc/d 50,000 64,000 76,000 81,500 84,500 99,300 142,400 16,100 201,900 242,450 271,650 298,150

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 LUVUNO CASH FLOW PROJECTION FOR THE YEAR 2023

Receipt January February March April May June July August September October November December
Loan 80,000 100,000
Sales 100,000 110,000 130,000 90,000 50,000 70,000 100,000 80,000 150,000 170,000 130,000 5,000
Debtors 20,000 15,000 25,000 30,000 20,000 35,000 10,000 4,000 2,000 2,300 1,700 3,000
Discount received 300 2,000 3,500 2,500 1,000 2,800 3,100 4,700 1,800 1,250 4,000 5,000
Total 203,000 127,000 158,500 122,500 71,000 107,800 113,100 88,700 153,800 173,350 135,700 113,000
Payements
Purchases 80,000 50,000 78,000 50,000 5,000 20,000 2,500 2,000 50,000 60,000 40,000 20,000
Salaries 50,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000
Creditors 8,000 1,000 3,000 5,000 2,000 10,050 3,000 10,000 2,000 8,000 5,000 1,500
Discount allowed 5,000 2,000 5,000 2,000 1,000 3,000 5,000 700 1,000 5,000 1,500 5,000
Total 153,000 113,000 146,000 117,000 68,000 93,000 70,500 70,000 113,000 133,000 106,500 86,500
Cash flow 50,000 14,000 12,000 5,500 3,000 14,800 45,100 18,700 40,800 40,550 29,200 26,500
Balanced b/d 50,000 64,000 76,000 81,500 84,500 99,300 142,400 16,100 201,900 242,450 271,650
Balancedc/d 50,000 64,000 76,000 81,500 84,500 99,300 142,400 16,100 201,900 242,450 271,650 298,150

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5.5 Pro forma income statements (Trading, profit and loss Account).
Table.

ITEM YEAR1 YEAR 2

Sales 1,185,000 1,740,000

Cost of sale 500,000 450,000

Gross profit c/d 685,000

Gross profit b/d 685,000 1,290000

Add any income 180,000 350,000

TOTAL 865000 164000

EXPENSES

SALARIES AND WAGES 720000 780,000

WATER 20,000 24000

TELEPHONE 1000 1500

TRANSPORT 12000 1200

TOTAL EXPENSES 753000 817500

NET PROFIT BEFORE 112000 822500

TAX 10% 10

TAXATION 11200 82250

NET PROFIT AFTER TAX 100800 740250

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5.6 Break even analysis
Total revenue= total cost

The total cost is greater than production cost thus the shop makes Supernormal profits. The
main factor affecting it is because detergents are not break even point(B.E.P).

B.E.P

The shop buys cartons of products with a price of 150,000 and a marginal cost of 15,000 and
the fixed cost of sh.840, 800p.a.

Fixed cost = 840, 000

Contribution/ unit= selling price - marginal.

150,000 - 15,000 =

135,000.

Selling price = 150,000

Target profit = 840,800+150,000÷ 135,000

= 7,339,259, 259.

a] B.E.P in units = fixed cost÷ contribution/ unit

840, 000 ÷ 135,000 = 6.222 unit.

b] B.E.P in value = fixed cost÷ 2,200,000 × selling price/ unit.

840, 000÷135,000×150,000 =

933,333.

c] Contribution on sales ratio = contribution/ unit ÷ selling price ×100.

135, 000÷ 150,000 × 100

d]. Number of units for target profit = fixed costs + target profits ÷ contribution/ unit =

840,000 + 10,000 ÷ 135,000 =

6.296 units.

e] Sales for target profit =

Fixed cost +target profit ÷ contribution/unit

840,000 + 10,000 ÷ 135,000 =

19
6.296 units.

5.7 Desired financing.

Item

Pre- operation cost

Working capital

Fixed assets

5.8 Capitalization.
Item

Owners’ contribution

Borrowed funds

Total investments

5.9 Profitability ratio

I] Gross profit ratios

GP ÷ sale × 100 =

112,000 ÷ 192,500 × 100 =

3.8291%

ii] Net profit ratio NP ÷ sale × 100 =

840, 800 ÷ 2,925, 000 = 28.7455%

ii] Return on equity = Net profit ÷ owners equity × 100 =

840, 000 ÷ 31167 × 100 =

26.9773%

iv] Quick ratio = current assets - stock (closing stock) ÷ current liability.

930,000 -749,750 ÷ 430,000 =

0.4192.

Liquidity ratios = current assets ÷ current liability.

930, 000 ÷ 430,000 =

2.1628.

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