BTEC Unit 3.1 Assignment Brightsparks



BTEC FIRST IN BUSINESS

Unit 3 – Financial Forecasting for Business

Unit 3 Assignment

Investigating Financial Control

Unit 3 – Financial Forecasting for Business

SCENARIO

To complete this assignment you need to read the case study below and complete the tasks which follow.

Bright Sparks Limited is a private limited company which manufactures fireworks. They have been trading now for one year (since January 2010). To begin trading they had many start up costs including, machinery, office equipment and safety equipment. Now they have many running costs, which are fixed and variable.

Bright Sparks produces fireworks all year round, but sales are only apparent in September, October, November and December. They produce different boxes varying from the budget “starter” box selling at £20.00 per box to the top of the range box called “the ultimate” retailing at £100.00

Income

Sales only occur in a certain time of the year and are as follows:-

September £40,000, October £65,000, November £50,000 and December £45,000

Expenses are as follows:

• Wages £5000 per month, but in July, August, September and October, seasonal workers increase the wages bill to £10,000 per month

• Heating lighting are £1000 per quarter, with the first instalment due in March

• Advertising is £1500 per month payable September, October, November

• Rent is £600 per month

• Raw Materials are £500 per month, with the exception of June, July, August and September which is £2000 per month

• Insurance is £2500 for the year, payable every August

• The company van needs taxing in December, this is currently £160 per year

• Fuel and maintenance costs for the van, average out at approx £100 per month

There is no opening bank balance

Unit 3 – Financial Forecasting for Business

Assignment 1

Task 1

1. Produce a detailed power point presentation about Bright Sparks Limited which will include:-

• A definition of start up and operating costs

• A definition of fixed costs and variable costs

• A list and total of the start up costs which you think bright sparks may have incurred

• A list and total of the operating costs which they now have (break down into fixed, and variable costs)

• A definition and total of the revenue and the possible sources of revenue

• The formula to calculate total revenue

• The formula to calculate gross profit and to calculate net profit

• The total gross profit made by the company.

• An explanation as to the difference between gross profit and net profit

This provides evidence for P1, P2 & P3

Task 2

• Prepare a handbook to accompany your presentation in which you explain why it is important for bright sparks limited to monitor costs, revenues and profit regularly

This provides evidence for M1

Learning Outcome

Understand the difference between costs, revenues and profits in business

Assessment Criteria

To achieve a pass you need to:

To achieve a merit you need to:

To be handed in by: ___________________________

Unit 3 – Financial Forecasting for Business

Assignment 2

Task 1

1. Define break even and show the formula which can be used to calculate the break even point

2. Using MS Excel, produce a break even chart for bright sparks limited, you must clearly show the break even point, area of profit, area of loss and the margin of safety:

• Construct the chart to show the break even point for the sale of the ultimate box which sells at £100 per box. Variable costs are £50 per box and fixed costs are £7500.

• Assuming Bright Sparks produce and sell 250 boxes explain what their margin of safety would be and label it on your chart.

• Demonstrate the impact of changing cost and revenue data on the break even point of a selected business

This provides evidence for P4 & P5

Task 2

1. A new competitor has recently emerged onto the market charging cheap prices for fireworks, therefore Brightsparks have decided that in order to maintain sales they are going to reduced their price to £95 per box. However because of rising prices within the country (inflation) Brightsparks costs have increased. Fixed costs have increased to £8000 and variable costs to be £55.00 per box.

2. Reprint your chart, again, clearly show the break even point, area of profit, area of loss and the margin of safety on your chart. (Assuming Bright Sparks still produce and sell 250 boxes explain what their margin of safety would now be and label it on your chart.)

3. Write an explanation to say what happened when these changes were input and what the result is now. Remember to mention how this will affect the business.

This provides evidence for M2

Learning Outcome

Understand and prepare break-even analysis

Assessment Criteria

To achieve a pass you need to:

To achieve a merit you need to:

To be handed in by: ___________________________

Unit 3 – Financial Forecasting for Business

Assignment 3

Task 1 – Cashflow Forecast

Using information from the case study to construct a cash flow forecast for Bright Sparks for twelve months, starting from January 2010.

Task 2 – Actual Cashflow

The actual sales figures have now been received and are below. Create a copy of the cash flow forecast called ‘Actual Cashflow’ and insert the new revenue figures below:

September – Starter boxes sold – 200

Ultimate boxes sold - 100

October – Starter boxes sold – 525

Ultimate boxes sold - 520

November – Starter boxes sold – 990

Ultimate boxes sold - 300

December – Starter boxes sold – 1248

Ultimate boxes sold – 2000

Also the following charges have also been incurred:

– Rising petrol prices costs have meant petrol costs actually increased to £156 from January to August and £259 from September to December.

– Advertising has increased to £2,200 for September – November.

– Wages increased by £500 in April, £700 in May and June and £2,400 in July to October. In November and December the wages bill decreased back down to £5,7000.

Make the relevant changes to the original and make sure you print both off.

This provides evidence for P6

Task 2

Create a presentation in which you:

• Look at the cash flow forecast and actual cash flow you have produced and explain the impact that negative cash flow could have on Bright Sparks and how a profitable business could easily go bankrupt due to cash flow problems.

• Look at the cash flow forecast and actual cash flow you have produced and discuss the irregular cash inflows and outflows of Bright Sparks and how it will affect them.

This provides evidence for M3

Task 3

Evaluate in writing, the importance of Cash Flow and Break Even Charts for effectively managing the finance of a business.

You may wish to consider:

• The strengths of the Break Even Chart (what does it show)

• The limitations of the Break Even Chart (in reference to large multi-product companies

• The usefulness of a cash flow forecast (what does it show?)

• The limitations of the cash flow forecast

This provides evidence for D1

Learning Outcome

Understand and prepare break-even analysis

Assessment Criteria

To achieve a pass you need to:

To achieve a merit you need to:

To achieve a distinction you need to:

To be handed in by:

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P1 – Identify the difference between start-up and operating costs, variable and fixed costs

P2 – Identify the different types of revenue

P3 – Outline the difference between gross and net profit

M1 – Explain the importance of costs, revenue and profit for a business organisation

P4 – Calculate break even using given data to show the level at which income equals expenditure

P5 – Present the break-even as an annotated graph showing break even

M2 – Demonstrate the impact of changing cost and revenue data on the break-even point of the business

P6 – Prepare an annual cash-flow forecast using monthly data

M3 – Analyse the implications of regular and irregular cash inflows and outflows for a business organisation

D1 – Evaluate the importance of Cash Flow and Break Even for the effective management of business finance.

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