The Veils & Tails Bridal is convinced that it will attain the breakeven point at a point when the 2,750,947 units are sold. This inference is the product of the breakeven formula that holds that unit volume will at all times equal the fixed cost divided by price less variable unit per unit cost. As well, this conclusion is arrived based on the formula that the organization’s breakeven point is obtained by obtaining the product of its fixed cost and sales divided by the value of sales for the period less variable costs incurred.
As per this presentation and breakeven analysis, Veils & Tails Bridal made use of the figures from the projected profit and loss account statements. This is due to the fact that they contain expenses like interest expense that makes the breakeven computation be more exact and more accurate. By employing these numbers, fixed costs is equal to $1,809,000. Total sales realized are computed as $955,000. Total variable cost incurred is $327,700. This value--variable costs--comprises the costs of incurred in the day to day running of the business and depends on the level of production or operation. They comprise of salary of the management team and workers (labour) which is $3000, organization’s marketing and advertisements ($49,000), interest expenses ($151,000), Insurance $15000, Accounting and legal expenses $12500, taxes $34600, electricity and selling expenses $12600, rent $20,000 as well as the general and administrative expenses which totals $30,000. The value $1,809,000 employed in the computation of breakeven point is the product of employee benefits, facility lease, utilities, advertising contracts and marketing interests. Depreciation was not included as part of the initial expense estimates. The revenue estimates were derived from the Sales Forecast which is included in the same spreadsheet.
However, the computation of this breakeven point is based on several assumptions, some of which are discussed as below.
The first assumption made while computing this breakeven point value is that Veils & Tails Bridal will maintain its Rate charged per item stocked and or consultancy fee per service as shown below.
On the same note, the value of the variable costs used was based on the current rates. This can as well increase in the course of the company’s operation. A considerable upward movement in the rate charged for marketing and adverts contracts, a major input for sales generation, could cause a major increase in the volume of sales needed by Veils & Tails Bridal to breakeven. On this ground, therefore, Veils & Tails Bridal built in a 3% more in the marketing and advertisement contract cost. Besides, there are variable costs per unit figure that could drastically affect the company’s breakeven point negatively. A gigantic increase in fuel prices could cause the costs of electricity to drastically increase. In a circumstance that the increase occurs and the cost is not passed on to our potential consumers, Veils & Tails Bridal could demand to sell more volume of its products so that it breakeven.
Our company has also assumed that the administrative costs which comprise the labour cost will remain unchanged throughout the year. However, in a situation where the labour union is able to get into our company and negotiate on behalf of our workers for better wages as well as for an increase in the employee benefits, Veils & Tails Bridal variable cost is likely to incline drastically. As well we assume that there is a positive consumer spending habits. Otherwise, in a situation where the consumers spend negatively, the sales volume will be affected and thus our company will have to reduce its prices per item. This implies that the company will have to sell more units for it to breakeven. Lastly, an assumption was made that the purchase price for the men’s formal wear, Allure bridals, Maggie Sottero, bridesmaids’ dresses, and prom dresses would remain the same throughout the year. Otherwise, an unfavorable currency exchange rate may impact negatively this line of items.
G2 FINANCIAL POSITION
Veils & Tails Bridal enters its second year in operation with no cash in the bank but with exemplary payment receivables (debtor’s value amounting to $259,000. Currently, there is no stiff competition in the market. Nonetheless, there is likelihood of existence of cheaper options being moot – albeit without compression strut-free forward operator vision.
Veils & Tails Bridal will as well start financial year 2013 positively having recorded an eight consecutive net monthly profits. Moreover, having just attained its breakeven point, the profitability and financial health of the company is likely to be concentrated in an upward trend. With $557,000 cash in hand and $107600 total current assets, the liquidity problems will be unheard of at Veils & Tails Bridal. This forecast does however presuppose the success of its major stock, the one not stocked by most bridal shops in the region. Even in the absence of a new product launch, our company boasts of still realizing consecutively a net profit of not less than $6525 for the month ending December. Veils & Tails Bridal managers have faith that the cash flow that shall have been displayed in 2012 will confirm investment which is favourable in terms.
Also, Veils & Tails Bridal predicted a current ratio of 2.79, with current assets $1076000 and current liabilities of $385100. This value, 2.79, of current ration signifies that that the company has a better liquidity position. There are sufficient current assets that help the company meet short term maturity obligations with a lot of ease. It shows that the company is more liquid thus able to meet its short term maturity obligations as well as its ability to pay its debts in the shortest time possible. With a forecasted debt ratio of 1.92, it is evident that the company has more outside financers, hence very suboptimal. With total liabilities of $2,385,100 and total assets of $1,245,000, the company is depicted to be highly leveraged. This implies that the management team must all it takes to bring the long term debts under control and good monitoring. In essence, as the Veils & Tails Bridal continues to increase its cash flow over the subsequent years, and offer for sale and more highly sought after bridal products to boost revenue, the suboptimal debt position is perceived as a minor threat to the company’s successful operation. This implies that Veils & Tails Bridal should as well retain its initial earnings and have it reinvested in the company for marketing as well as for business development. This calls for the re-identification of a bridal wears designer and investment into highly sought bridal wears at an affordable prices. These expenses would also help reduce the huge tax exposure in the succeeding year.
Capital investment needs
The projected capital outlay for the ascertainment of the start up the proposed bridal shop will be as shown below:
Source of capital Amount ($)
Loan from commercial Banks and financing institutions 2,000,000
Contribution by Partners 3,000,000
As indicated earlier, these finances will basically be used for securing the facility, bridal products as well as capital to run additional stock in the company in the financial year 2013.
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