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You (and your team) work in a boutique firm called 'Business Advisory Pty. Ltd.', a business that provides advisory services to other businesses. Your role in the firm is a business consultant providing advice to business clients. To this end, you are often required to produce budgetary reports and present such reports to clients. Mr. James Hunter and Dr Olivia Ng own an Optometry business trading under the name "i-Optometry" and they have approached you (and your team). Being a brick and mortar store located in Burwood, Victoria, i- Optometry is a business that has traditionally focused on selling eyewear such as sunglasses and prescription glasses. The business also provides optometry services to customers, mainly a comprehensive eye examination. James is in charge of the management of the business while Dr Ng, manages the optometry aspects of the business. As part of their business operations, i-Optometry retails the following types of eyewear: Sunglasses retail on average for $200 per pair of glasses. It costs $60 per pair and the business purchases these from a local supplier. Prescription reading glasses retail for $150 each. It costs $80 to secure from the same local supplier. i-Optometry also provide comprehensive eye tests to clients who wish to assess eye health. The price of a comprehensive eye test is $75. As part of the eye-test, the Optometrist will examine the eyes, detect, diagnose and manage vision problems, and assess eye health. Optometrists can prescribe and fit glasses or contact lenses. Optometrists can also advise you on many aspects of your eye health. It is now the end of 2019. The clients have been thinking of stepping their business up to the next level and so they have approached your firm for some business advice. Specifically, they have listed some potential projects which can be implemented starting from 1st January 2020 as follows: #1 Expansion Project: The owners believe that they can improve business by expanding their storefront location. Specifically, they would like to increase the floorspace of the existing premises to include some additional display cabinets and expand the number of eye-test rooms to reduce customer wait-time. Out of all the projects this has the greatest initial capital requirements. #2 Cost Management Strategy: James suggests that selling prescription glasses does not produce enough margin. He has proposed that they focus on the sunglasses and other casual eyewear products and further increase the margins by changing suppliers. The new supplier will provide slightly inferior products but will be much cheaper than the current supplier. James would also introduce a number of other cost-cutting initiatives such as reduced wages, and energy usage. #3 Advanced Marketing Campaign Olivia has suggested that the current business model works well but they simply need to expand marketing. She believes that if more clients came to the business they can improve revenues. Specifically, if the business paid for an advertising agency to help set up an online portal, advertise in the local newspaper, put up social media ads, etc. more people will come to do eye tests. Based on her estimates, Olivia believes that while eye-tests count for a smaller proportion of revenue, they are strongly tied to the sale of prescription glasses, so the business should focus on eye-care rather than retailing sunglasses. Note that the cost of this project is a repeated amount that the business will need to pay every month on top of any existing marketing expenses. Fact Sheet Jan-2019 Feb-2019 Mar-2019 Apr-2019 May-2019 Jun-2019 Jul-2019 Aug-2019 Sep-2019 Oct-2019 Nov-2019 Dec-2019 160 176 1 51 1 26 116 99 84 73 130 160 1 1751 188 Sales Volume - Sunglassses Service Volume - No. of Clie88 97 | 109 121 126 | 113 | 121 139 1 53 1 67 188 I 194 Selling Price - Sunglasses ######## Cost Price - Sunglasses $60.00 Selling Price - Prescriptic ######## Cost Price - Prescription & $80.00 Service Revenue $75.00 Number of Sale Assistants: 2 Wage Rate per Month per Per $4,000 Number of Office Staff: 1 Wage Rate per Month per Per $1,500 Number of Optometrists 2 Wage Rate per Month per Per $6,500 Additional Information for Jan 2019 - Dec 2019: Both James and Olivia are partners within the business and each of them draws an amount of $1600 per month. Each partner plans on increasing the drawings to $3200 per month starting from January of 2020. As the manager, James keeps a close eye on inventory management and would like to always maintain a monthly ending inventory requirement of 30% of next month's sales. Additionally, all purchases with the current supplier are on a credit basis, with 50% of the amount settled in the same month of purchase and the remaining 50% settled one month after the month of purchase. The business typically will have 80% of their sales as cash, with the remaining 20% on credit. Of the credit sales, 70% is collected in the month of sale, 20% is collected one month after the sale, and 10% is collected two months after the sale. All customers coming in for an eye check pay for the service in cash 100% of the time. The business has a range of equipment and other fixed assets such as: Specialised optometry equipment to provide the comprehensive eye-tests. The total cost of equipment is $10560 and it is expected to last 4 years. Other office equipment has a historical cost of $30000 and depreciates at 20% per annuin. Shop fittings were originally purchased at $63600 and depreciate at 10% per annum. All fixed assets have $0 residual value and are depreciated using the straight-line method of depreciation. Other Fixed Costs for Jan 2019 - Dec 2019: Marketing expense of $900 per annum is paid evenly across 12 months. $3000 of annual general business insurance is paid in July every year. Bank account fees works out to be $48 per month and are paid at the start of each quarter. On average, the office supplies are purchased and expensed every month to the amount of $90. Council rates are $600 per year and are usually paid in December each year, t the start of each quarter and works out to be $6400 per month. Water, gas and electricity are combined under on utility expense which adds up $495 per quarter and is usually paid at the end of each quarter. **Note: Quarter 1 runs from 1 Jan-31 Mar; Quarter 2 runs from 1 Apr - 30 Jun; Quarter 3 runs from 1 Jul - 30 Sep: Quarter 4 runs from 1 Oct - 31 D CASH BUDGET Jan-201 15, 000 Feb-20 5,000 Mar-20 11, 808 Apr-20 16, 960 May-20 Jun-20 1,6775 ,450 Jul-20 3, 516 Aug-20 (20, 740) Sep-20 (21, 829) Oct-20 (12, 634) Nov-20 (16, 348) Dec-20 4,892 TOTAL (7, 248) OPENING CASH BALANCE CASH INFLOWS: CASH SALES TESTS Credit sales 70% Credit Sales 20% Credit Sales 10% TOTAL CASH AVAILABLE: 37, 240 6, 600 6, 517 41,000 7, 275 7, 175 1, 862 38,560 8, 175 6, 748 2,050 36, 120 9, 075 6, 321 1, 928 1,025 71, 429 35, 240 9,450 6, 167 1, 806 964 55, 304 30, 720 8, 475 5, 376 1, 762 903 52, 686 29, 400 9, 075 5, 145 1,536 881 49, 553 30, 040 10, 425 5, 257 1, 470 768 27, 220 40,960 11, 475 7, 168 1, 502 735 40, 011 47, 680 12, 525 8, 344 2,048 751 58, 714 52, 840 14, 100 9, 247 2, 384 1,024 63,247 55, 640 14, 550 9, 737 2, 642 1, 192 88, 653 475, 440 121, 200 83, 202 20,990 9, 174 702, 758 931 65, 357 62, 312 68, 272 8,000 4,500 13,000 6, 400 75 8,000 4,500 13,000 6,400 75 8,000 4, 500 13,000 6,400 75 8,000 4,500 13,000 6, 400 75 8,000 4,500 13,000 6, 400 75 | 8,000 4, 500 13,000 6, 400 75 8,000 4, 500 13,000 6,400 75 3,000 114 90 8,000 4,500 13,000 6,400 75 8,000 4, 500 13,000 6, 400 75 8,000 4,500 13,000 6,400 75 8,000 4,500 13,000 6, 400 75 CASH OUTFLOWS Sales staff expense Office staff expense Optometrists Drawings by partners Marketing Expense General insurance Bank account fees Office Supplies Council Rates Rent Water, gas and Electricity Glasses amount payable 8,000 4, 500 13,000 6,400 75 96,000 54, 000 156, 000 76, 800 900 3,000 486 1,080 144 114 90 90 90 114 90 90 90 90 90 90 90 90 19, 200 19, 200 19, 200 19, 200 495 495 495 495 76, 800 1, 980 8, 948 8, 948 Total Cash Spent L 60, 357 50, 504 5 1, 312 69, 752 49,854 4 9, 170 70,293 4 9, 049 5 2, 645 75,062 58, 355 56, 791 693, 144 CLOSING BANK BALANCE 1 5 , 000 1 1, 808 16, 960 1,677 5,450 3 , 516 (20, 740) (21, 829) (12,634) (16,348) 4 ,892 31, 862 9,614 BUDGETED INCOME STATEMENT Jan-20 Feb-20 Mar 20 Apr 20 May-20 Jun-20 Jul-20 Aug 20 Sep-20 0:1-20 Nov-20 Dec 20 TOTAL Gross Profit Other Income: Operating Expenses: Sclling Expenses: Gencral & Administrative Expenses Total Operating Expense Nel Operating Profil Non-Operating Income and Expenses Profit (Loss) before income tax You (and your team) work in a boutique firm called 'Business Advisory Pty. Ltd.', a business that provides advisory services to other businesses. Your role in the firm is a business consultant providing advice to business clients. To this end, you are often required to produce budgetary reports and present such reports to clients. Mr. James Hunter and Dr Olivia Ng own an Optometry business trading under the name "i-Optometry" and they have approached you (and your team). Being a brick and mortar store located in Burwood, Victoria, i- Optometry is a business that has traditionally focused on selling eyewear such as sunglasses and prescription glasses. The business also provides optometry services to customers, mainly a comprehensive eye examination. James is in charge of the management of the business while Dr Ng, manages the optometry aspects of the business. As part of their business operations, i-Optometry retails the following types of eyewear: Sunglasses retail on average for $200 per pair of glasses. It costs $60 per pair and the business purchases these from a local supplier. Prescription reading glasses retail for $150 each. It costs $80 to secure from the same local supplier. i-Optometry also provide comprehensive eye tests to clients who wish to assess eye health. The price of a comprehensive eye test is $75. As part of the eye-test, the Optometrist will examine the eyes, detect, diagnose and manage vision problems, and assess eye health. Optometrists can prescribe and fit glasses or contact lenses. Optometrists can also advise you on many aspects of your eye health. It is now the end of 2019. The clients have been thinking of stepping their business up to the next level and so they have approached your firm for some business advice. Specifically, they have listed some potential projects which can be implemented starting from 1st January 2020 as follows: #1 Expansion Project: The owners believe that they can improve business by expanding their storefront location. Specifically, they would like to increase the floorspace of the existing premises to include some additional display cabinets and expand the number of eye-test rooms to reduce customer wait-time. Out of all the projects this has the greatest initial capital requirements. #2 Cost Management Strategy: James suggests that selling prescription glasses does not produce enough margin. He has proposed that they focus on the sunglasses and other casual eyewear products and further increase the margins by changing suppliers. The new supplier will provide slightly inferior products but will be much cheaper than the current supplier. James would also introduce a number of other cost-cutting initiatives such as reduced wages, and energy usage. #3 Advanced Marketing Campaign Olivia has suggested that the current business model works well but they simply need to expand marketing. She believes that if more clients came to the business they can improve revenues. Specifically, if the business paid for an advertising agency to help set up an online portal, advertise in the local newspaper, put up social media ads, etc. more people will come to do eye tests. Based on her estimates, Olivia believes that while eye-tests count for a smaller proportion of revenue, they are strongly tied to the sale of prescription glasses, so the business should focus on eye-care rather than retailing sunglasses. Note that the cost of this project is a repeated amount that the business will need to pay every month on top of any existing marketing expenses. Fact Sheet Jan-2019 Feb-2019 Mar-2019 Apr-2019 May-2019 Jun-2019 Jul-2019 Aug-2019 Sep-2019 Oct-2019 Nov-2019 Dec-2019 160 176 1 51 1 26 116 99 84 73 130 160 1 1751 188 Sales Volume - Sunglassses Service Volume - No. of Clie88 97 | 109 121 126 | 113 | 121 139 1 53 1 67 188 I 194 Selling Price - Sunglasses ######## Cost Price - Sunglasses $60.00 Selling Price - Prescriptic ######## Cost Price - Prescription & $80.00 Service Revenue $75.00 Number of Sale Assistants: 2 Wage Rate per Month per Per $4,000 Number of Office Staff: 1 Wage Rate per Month per Per $1,500 Number of Optometrists 2 Wage Rate per Month per Per $6,500 Additional Information for Jan 2019 - Dec 2019: Both James and Olivia are partners within the business and each of them draws an amount of $1600 per month. Each partner plans on increasing the drawings to $3200 per month starting from January of 2020. As the manager, James keeps a close eye on inventory management and would like to always maintain a monthly ending inventory requirement of 30% of next month's sales. Additionally, all purchases with the current supplier are on a credit basis, with 50% of the amount settled in the same month of purchase and the remaining 50% settled one month after the month of purchase. The business typically will have 80% of their sales as cash, with the remaining 20% on credit. Of the credit sales, 70% is collected in the month of sale, 20% is collected one month after the sale, and 10% is collected two months after the sale. All customers coming in for an eye check pay for the service in cash 100% of the time. The business has a range of equipment and other fixed assets such as: Specialised optometry equipment to provide the comprehensive eye-tests. The total cost of equipment is $10560 and it is expected to last 4 years. Other office equipment has a historical cost of $30000 and depreciates at 20% per annuin. Shop fittings were originally purchased at $63600 and depreciate at 10% per annum. All fixed assets have $0 residual value and are depreciated using the straight-line method of depreciation. Other Fixed Costs for Jan 2019 - Dec 2019: Marketing expense of $900 per annum is paid evenly across 12 months. $3000 of annual general business insurance is paid in July every year. Bank account fees works out to be $48 per month and are paid at the start of each quarter. On average, the office supplies are purchased and expensed every month to the amount of $90. Council rates are $600 per year and are usually paid in December each year, t the start of each quarter and works out to be $6400 per month. Water, gas and electricity are combined under on utility expense which adds up $495 per quarter and is usually paid at the end of each quarter. **Note: Quarter 1 runs from 1 Jan-31 Mar; Quarter 2 runs from 1 Apr - 30 Jun; Quarter 3 runs from 1 Jul - 30 Sep: Quarter 4 runs from 1 Oct - 31 D CASH BUDGET Jan-201 15, 000 Feb-20 5,000 Mar-20 11, 808 Apr-20 16, 960 May-20 Jun-20 1,6775 ,450 Jul-20 3, 516 Aug-20 (20, 740) Sep-20 (21, 829) Oct-20 (12, 634) Nov-20 (16, 348) Dec-20 4,892 TOTAL (7, 248) OPENING CASH BALANCE CASH INFLOWS: CASH SALES TESTS Credit sales 70% Credit Sales 20% Credit Sales 10% TOTAL CASH AVAILABLE: 37, 240 6, 600 6, 517 41,000 7, 275 7, 175 1, 862 38,560 8, 175 6, 748 2,050 36, 120 9, 075 6, 321 1, 928 1,025 71, 429 35, 240 9,450 6, 167 1, 806 964 55, 304 30, 720 8, 475 5, 376 1, 762 903 52, 686 29, 400 9, 075 5, 145 1,536 881 49, 553 30, 040 10, 425 5, 257 1, 470 768 27, 220 40,960 11, 475 7, 168 1, 502 735 40, 011 47, 680 12, 525 8, 344 2,048 751 58, 714 52, 840 14, 100 9, 247 2, 384 1,024 63,247 55, 640 14, 550 9, 737 2, 642 1, 192 88, 653 475, 440 121, 200 83, 202 20,990 9, 174 702, 758 931 65, 357 62, 312 68, 272 8,000 4,500 13,000 6, 400 75 8,000 4,500 13,000 6,400 75 8,000 4, 500 13,000 6,400 75 8,000 4,500 13,000 6, 400 75 8,000 4,500 13,000 6, 400 75 | 8,000 4, 500 13,000 6, 400 75 8,000 4, 500 13,000 6,400 75 3,000 114 90 8,000 4,500 13,000 6,400 75 8,000 4, 500 13,000 6, 400 75 8,000 4,500 13,000 6,400 75 8,000 4,500 13,000 6, 400 75 CASH OUTFLOWS Sales staff expense Office staff expense Optometrists Drawings by partners Marketing Expense General insurance Bank account fees Office Supplies Council Rates Rent Water, gas and Electricity Glasses amount payable 8,000 4, 500 13,000 6,400 75 96,000 54, 000 156, 000 76, 800 900 3,000 486 1,080 144 114 90 90 90 114 90 90 90 90 90 90 90 90 19, 200 19, 200 19, 200 19, 200 495 495 495 495 76, 800 1, 980 8, 948 8, 948 Total Cash Spent L 60, 357 50, 504 5 1, 312 69, 752 49,854 4 9, 170 70,293 4 9, 049 5 2, 645 75,062 58, 355 56, 791 693, 144 CLOSING BANK BALANCE 1 5 , 000 1 1, 808 16, 960 1,677 5,450 3 , 516 (20, 740) (21, 829) (12,634) (16,348) 4 ,892 31, 862 9,614 BUDGETED INCOME STATEMENT Jan-20 Feb-20 Mar 20 Apr 20 May-20 Jun-20 Jul-20 Aug 20 Sep-20 0:1-20 Nov-20 Dec 20 TOTAL Gross Profit Other Income: Operating Expenses: Sclling Expenses: Gencral & Administrative Expenses Total Operating Expense Nel Operating Profil Non-Operating Income and Expenses Profit (Loss) before income tax
