Assignment Task
SCENARIO
The following assessment tasks use a simulated business called Complete Business Solutions Australia (CBSA). In order to complete the assessment tasks, you will need to access information and documents associated with CBSA, as indicated in the assessment tasks.
CBSA has been engaged to provide administrative services to a new client, the owner of Trend Home Office Desks, who is proposing a new business venture. They need CBSA’s expertise to advise what high-level business strategy to implement for a home-based retail business.
Activities required include identifying product and delivery costs, profit targets, minimum sales price, break-even sales point, recommended pricing strategies, and a projected profit statement for the proposed business venture.
Attachment 1: Case notes
Trend Home Office Desks: Business Background
The client, Alison Bhana, wants to establish a small business that provides ready-to-assemble affordable home office furniture made in Australia by retired craftsmen who use wood, melamine, and metal. Sustainability is important for the client – using the skills of retired craftsmen and making products that will last a long time or can be repurposed as a hall table or sofa table.
⦁ It is proposed that the business will sell a range of six home office desks (see Attachment 2 for detailed costing and product specifications).
Each unit comes with the tools for easy assembly. The desks are made in Australia and bought at a wholesale price from Eco Office Furniture. Trend Home Office Desks is the sole seller of the desks from Eco Office Furniture, as it was an idea Alison came up with when she was talking to her grandfather, who is one of the men at Eco Office Furniture.
The client’s vision is to be the No. 1 seller of sustainable home office desks that people will use and keep for a lifetime.
The unique selling proposition is that the desks are hand-made in Australia by retired craftsmen and the desks are made to fit into small spaces for people working from home. Some parts of the desks are made from recycled materials.
The client will put in $20,000 cash to fund the business. She would like to earn as wages before tax, $40,000 in the first year; $50,000 in the second year, and $60,000 in the third year.
⦁ Alison’s business is a sole-trader business with limited outlay. Alison has $20,000 cash to put into the business to set it up.
⦁ Initial marketing and advertising costs are estimated to be $500, then $100 monthly.
⦁ The business is to be registered as a sole trader and the business name (Trend Home Office Desks) needs to be registered in NSW for one year.
⦁ Alison is renting a three-bedroom house. She is planning to use one of the rooms as the office for the business. She calculated the rent-related expenses apportioned on a floor area and time basis, so she will be able to claim the following as occupancy expense in her tax return: $150 per week for rent and $5,200 for utilities per year.
⦁ The website needs to be built with a shopping cart. Professional photos will need to be taken of the six (6) products. The best quote received for the website including the photos is $7,000. A domain name will also need to be purchased for $50 upfront for the first year and then $25 per year ongoing.
⦁ The business will only operate as an online store from a website that Alison would monitor from a home office. The home office needs to have internet setup ($200 establishment fee and $80 per month, phone costs $50 per month plus a $60 fee to establish the business phone number and require office stationery of $80 initially and $40 per month on-going).
⦁ Orders would only be placed with the manufacturer when an order has been received online and paid in full by customers. This requires the business to use specific web-based software that requires a one-off establishment fee $100 and then $20 every month.
⦁ Alison will need to set up an online payment system for the online store. She would prefer a system that integrates with an online accounting system that produces invoices/receipts and consignment notes when orders are ready for delivery. The ordering software required by the manufacturer also includes access to an accounting system.
⦁ Business insurance is also required and has been quoted to be $1,200 per annum paid upfront.
⦁ The manufacturer could deliver the flat-pack desk to Alison’s home at $80 per delivery. As Alison has limited space for storage at home, she wouldn’t be able to buy bulk orders of 10 desks for each style.
⦁ Alison would then arrange for delivery to the customer by another courier at $70 per delivery or offer a Click and Collect Service for customers to reduce the cost of delivery. However, the Click and Collect option to her home causes her some anxiety because it is her home, and it may be a disruption for her family.
⦁ Alison wants to achieve at least a 30% profit margin. She thinks that an $80 mark-up on all products sold will provide her with an income and cover costs for the website and advertising and marketing.
Attachment 2: Product list – Trend Home Office Desks
Desks Desk with Under Desk Drawer and/or Shelving
Desk 1
White and black forest top 2-drawer desk – 110 x 55 x 76 cm
Wholesale price is $250 each (incl. GST) or $230 each if purchased in lots of 10 units (incl. GST)
Desk 2
Black forest 2-drawer desk – 110 x 50 x 76 cm
Wholesale price is $250 each (incl. GST) or $230 each if purchased in lots of 10 units (incl. GST)
Desk 3
Whitewash 2-drawer desk – 110 x 50 x 76 cm
Wholesale price is $250 each (incl. GST) or $230 each if purchased in lots of 10 units (incl. GST)
Desk 4
Black pine look desk top with under desk set of 3 drawers and under desk shelving for a printer – 150 x 70 x 76 cm
Wholesale price is $350 (incl. GST) or $330 each if purchased in lots of 10 units (incl. GST)
Desk 5
Two-tone design with timber veneer top with reversible bookcase – 150 x 70 x 76 cm
Wholesale price is $300 each (incl. GST) or $280 each if purchased in lots of 10 units (incl. GST)
Desk 6
White high gloss desk with three drawers with runners – 140 x 60 x 76 cm
Wholesale price is $280 each (incl. GST) or $260 each if purchase in lots of 10 units (incl. GST)
Task 1: Start-Up Costs
Complete the ‘Estimated Start-up Costs’ table below to calculate the total start-up costs using the information provided in the email and attachments from Gavin Stead alongside the information provided below:
research the cost for registering a business name accessing the following website
access the following websites and research if any licenses or permits are required for that location and type of business
check whether there is any cost for registering for GST.
Estimated Start-up Costs
⦁ Registrations, legislative, and regulatory requirements:
⦁ Register the Business Name
⦁ Register for GST
⦁ Consumer Product Safety and Information Standards
⦁ Domain name
⦁ Operational costs:
⦁ Internet connection
⦁ Phone connection
⦁ Website development
⦁ Web-based ordering and accounting software establishment fee
⦁ Stationery and office supplies
⦁ Marketing and advertising
⦁ Business Insurance
TOTAL ESTIMATED COSTS
Question
Is $20,000 sufficient to cover the start-up costs before any income is received? Briefly explain your answer
Task 2. Production and Delivery Costs
Identify costs associated with the production and delivery of desks. Complete the ‘Cost of Supply and Delivery of Products per Unit’ table below to calculate the costs associated with supply and delivery of the office desks.
⦁ Use the following table to calculate the cost per unit for each desk style if one desk was ordered from the supplier, delivered to your office, and then delivered to the customer.
Cost of Supply and Delivery of Products per Unit
Wholesale price per unit (incl. GST) – $250
Product delivery fee – $80
Customer delivery fee – $70
Cost per unit – $400
⦁ Calculate the cost per unit for each desk style if one desk was ordered from the supplier and the desk was directly delivered to the customer.
Cost of Supply and Delivery of Products per Unit
Wholesale price per unit (incl. GST) – $250
Product Delivery Fee – $80
Cost per unit – $330
Explain why ordering stock and delivering the products directly to the customer is the best strategy for both the business and customers, based on the calculations you have made.
Task 3. Retail Price and Profit Target
Calculate prices based on cost and profit targets, then select a pricing strategy by following the workplace procedures outlined in points a-c:
a) Complete the following table to calculate the retail price per unit for each style of desk if the owner was to achieve 30% profit margin from the wholesale price per unit:
Desk 1
Wholesale price per unit (excluding delivery fee from supplier to customer) – $250
30% profit margin – $75
Sales price per unit if 30% profit margin was applied to wholesale price per unit – $250 + 30% =
$250 + $75 = $325
b) Complete the following table to calculate the retail price per unit for each style of desk if the owner was to achieve the $80 mark-up from the wholesale price per unit:
Desk 1
Wholesale price per unit (1) (excluding delivery fee from supplier to customer) – $250
Mark-up $80
Sales price per unit if $80 mark-up is applied to wholesale price per unit – $250 + $80 mark-up = $330
c) Complete the following table to calculate the estimated number of units required to be sold to achieve the Profit Target of $40,000 in the first year (not considering the fixed and variable costs). Assume that an equal number of units will be sold across all desk types (1-6) and use the sales price calculated in ‘point a’ (30% profit margin) to calculate an average sales price.
Desk 1
Sales price per unit if 30% profit margin was applied to wholesale price per unit – $250 + 30% =
$250 + $75 = $325
Average sales price per unit
Number of units to be sold to achieve a $40,000 profit target for Year 1.
d) Complete the following table to calculate the estimated number of units required to be sold to break even in the first year. Assume total fixed costs are estimated to be $65,400 and there are no variable costs. Use the average sales price calculated in ‘point c’ above, based on the assumption that an equal number of units will be sold across all desk types (1-6).
Average sales price per unit
Break-even (units) per Year
e) Complete the following table to set a profit target for the business if they were to sell 200 desks. Assume total fixed costs are estimated to be $65,400 and there are no variable costs. Use the average sales price calculated in ‘point c’ above, based on the assumption that an equal number of units will be sold across all desk types (1-6).
Average sales price per unit
Set profit target ($) per year
Desk 1 Desk 2 Desk 3 Desk 4 Desk 5 Desk 6
Competitor 1 $325 $325 $325 $455 $390 $364
Competitor 2 $320 $320 $320 $450 $385 $359
Competitor 3 $325 $325 $325 $455 $390 $364
Competitor 4 $325 $325 $325 $455 $390 $364
f) As a result of researching the current market conditions, the following competitor report has been received from Alison. Four competitor prices have been compared with similar products Alison is wanting to sell.
Task 4. Prepare Projected Profit and Loss Statement
a) You are required to prepare a Projected Profit and Loss Statement for the first 12 months of the home-based retail business venture based on the information you have gathered so far, and the assumptions listed below:
⦁ Only Desks 1-3 will be sold, selling price will be wholesale price + 30% profit margin
⦁ In total 30 desks are expected to be sold every week of the year
⦁ $40,000 of wages is to be included and paid to the owner
⦁ All desks will be delivered directly to customers and customers pay the delivery fee directly to the delivery company.
Projected Profit and Loss for Upcoming Financial Year 20XX
Income
Sale of Desks
Total Income
Cost of Goods Sold
Purchases (estimate using wholesale price $250 per unit x 30 units per week x 52 weeks)
Delivery from Supplier/Manufacturer (estimate $80 per unit x 30 units per week x 52 weeks)
Total Cost of Goods Sold
Expenses
Set-up costs
Rent ($150 x 52 weeks)
Wages
Utilities
Internet ($80 x 11 months)
Telephone ($50 x 11 months)
Stationery and office supplies ($40 x 11 months)
Ordering and Accounting Software ($20 x 11 months)
Advertising/Marketing ($100 X 11 months)
Total Expenses
Net Position
Income
Cost of Goods Sold
Gross Profit
Expenses
Other income
Other expenses
Net Position
b) Answer the following questions:
Question 1:
Does the projected Profit and Loss Statement show a Profit Target of $40,000 as wages to the owner? Explain your answer.
Question 2:
Is the 30% Profit Margin included in the Income from the sale of products? Explain your answer
Question 3:
Is the Net Position a Profit or a Loss?
Question 4:
Would you recommend Alison Bhana to consider the home-based option as a viable business venture? Briefly explain why / why not.
Part B: Develop the Financial Plan
For this part, you are required to complete the ‘Financial Plan’ Excel file developed by CBSA for Trend Home Office Desks.
Access the Trend Home Office Desks Financial Plan.xls Excel file, save the document using the following naming convention: BSBESB403_Project_Financial Plan_yourname_yymmdd, then complete the required tasks.
You will be required to:
⦁ prepare a Balance Sheet and identify working capital requirements to obtain the profit target identify non-current asset requirements and consider alternative asset management strategies
⦁ prepare cash flow statement to reflect the planned business operations, legal requirements and identify capital requirements
⦁ prepare a budgeted monthly Profit and Loss Statement to enable the business to monitor the ongoing financial performance
Task 1. Balance Sheet and Working Capital Requirements
⦁ Insert your name to the Cover tab of the Trend Home Office Desks Financial Plan.xls Excel file, then complete the Balance sheet for the end of August 202X:
⦁ Using the figures already provided in the Balance sheet, calculate the Net Assets (Net Worth) and Working Capital.
⦁ Use the following Stock on Hand information to calculate the total Inventory figure.
Stock on Hand as of the end of August 202X
Stock on Hand Display Stock Wholesale price per unit Value of Stock on Hand
Desk 1 31 1 $230
Desk 2 27 1 $230
Desk 3 26 1 $230
Desk 4 28 1 $330
Desk 5 23 1 $280
Desk 6 28 1 $260
Total Value of Stock on Hand
Task 2. Asset Management Strategies
a) Use the information from the Balance Sheet from the Trend Home Office Desks Financial Plan.xls Excel file to complete the following table and identify the current value of the three non-current assets that are required by the business:
Non-current Asset
Furniture and fit-out
Equipment/tools
Computer equipment
b) Recommend two (2) asset management strategies to the owners that could assist with maintaining the effectiveness of these assets.
Task 3. Complete Cash Flow Projections
a) To enable the business to plan financial and legal requirements, complete the ‘Cash Flow Projections’ Tab of the Trend Home Office Desks Financial Plan.xls file.
⦁ To prepare for the cash flow projections, use the following information:
⦁ prepare the cash flow projections for the first 6 months of operations July – December
⦁ Alison Bhana, the owner, no longer has $20,000 capital available for the business to cover the set-up costs and to purchase stock.
⦁ assume the business receives the cash for the sales within the month the sale is made
⦁ 10 Desks 1- 3 are sold each month (30 desks in total each month) for Wholesale price + 30% profit margin
⦁ the cost of purchases is the Wholesale Price only as the customer pays for the delivery directly. This must be paid in the month ordered
⦁ the business is not planning to hold any additional stock
⦁ the initial website development cost has been confirmed to $7,000 with additional functionality being added in October for $5,500.
b) Analyse the Cash Closing Balance for each month and consider the amount of stock purchases required at the beginning of the month. Identify the amount of capital investment required each month.
c) If the client is certain of the incoming cash from sales for each month, how would you recommend the business to finance any shortfall?
Task 4. Monthly Budget Targets
Prepare a budgeted monthly Profit and Loss Statement to enable the business to monitor the ongoing financial performance:
⦁ Complete the ‘Monthly Budget Targets’ tab in the Trend Home Office Financial Plan.xls Excel file using the information already gathered.
⦁ To eliminate any shortfalls in any given month, identify two (2) changes to the budget targets you would recommend to Trend Home Office Desks’ owner.
Part C: Plan to Acquire Finance
You are required to plan to acquire finance according to CBSA’s workplace procedures (outlined below in four steps) before meeting with the client to discuss the options:
⦁ Identify sources of finance for required liquidity according to business goals. Therefore:
⦁ identify at least one (1) source of equity finance
⦁ identify at least one (1) source of debt finance
⦁ identify at least one (1) other option for raising funding (grants, crowdfunding, etc.)
⦁ Using the internet, research and assess the cost of securing each identified source of finance. Provide the internet source for the information given. If you obtained the information from multiple sources, provide a hyperlink to all sources used.
⦁ Develop strategies to obtain each identified source of finance
⦁ Identify implications of your legal and regulatory responsibilities whilst carryout this procedure regarding:
⦁ confidentiality
⦁ declaring income in annual tax returns.
To get started, carefully read the email from Gavin Stead, and then complete the ‘Plan to Acquire Finance Template’, in accordance with CBSA’s workplace procedure outlined above,
Plan to Acquire Finance
Source of Finance
One equity finance option
On debt finance option
One other finance option
Identify the implications of maintaining client confidentiality when completing this template
Identify the implications of regulatory requirements for declaring income in annual tax return
