In this assessment, you will apply management accounting techniques and financing knowledge to provide (in written and oral form) information for decision making based on a hypothetical scenario.

Scenario overview

Your role: Management consultant

Your task: Using slides and video, present the following to your client:

1. a CVP analysis including monthly breakeven units and a brief interpretation that also highlights any major implication(s) for the business;
2. a monthly cash budget for October to March (inclusive) based on initial forecasts and a brief interpretation that also highlights any major implication(s) for the business; and
3. clarification of financing needs with suggested financing sources.

Dev Patel has registered a new private company for his latest business venture. Dev is the only shareholder of the company. He intends opening to customers in the first week of October and he wants the business to begin making a monthly operating profit of $10,000 within the first six months of operation.

In September, Dev intends to open a company bank account and deposit $20,000 plus the sum required to buy company non-current assets. These assets will be bought and paid for by the company on October 1st. Dev expects furniture, fixtures and fittings to cost $30,000 and have a 10-year useful life, while computer equipment will cost $9,000 and have a 3-year useful life. All these assets will be depreciated using the straight-line method but none have any expected salvage value at the end of their useful lives.

Dev's business will sell candles to homeware stores for $10 each. Projected monthly sales in units (candles) are: 5,000 in October; 6,000 in November; 7,000 in December; 8,500 in January; and 10,000 each month after that. Forty per cent of customers are expected to pay in the month of sale, 50% in the month after sale, and the remainder in the second month after sale.

Negotiations with a supplier resulted in a one-year contract starting in September that specifies an $7.50 cost per unit for a monthly order of at least 5,000 units and payment to be made within 21-days of order. The contract also specifies order delivery within one week so Dev plans to order in the third week of each month, commencing in September, and pay at the end of the credit period. He will order the number of units that he expects the business to sell in the upcoming month.

Expected company operating expenses per month from October onwards, all of which will be paid for in the month incurred are: wages $6,000; utilities $2,000; insurance $4,000; and marketing $2,500. In addition, quarterly rent payments of $9,000 for an office and storeroom will be made in advance, commencing at the beginning of October.