You have been approached by your client, Banana Industries Pty Ltd, to assist them in planning a new business venture. The business is planned to start on 1 July 2020.

Banana Industries has developed a new corporate boardroom webcam system which will be competing with others for the massive uptake in videoconferencing technology due to Covid-19.

Banana Industries requires you to prepare a budget and analysis of two separate scenarios they have determined to be likely, and have provided you with the following information.

Scenario #1

Cost of goods per unit $3750 [excluding GST]; mark-up 65%; expected annual sales 410 units. 8% of sales revenue [excluding GST] will be spent on marketing and advertising costs

Expenses [excluding GST)

Sales staff: 2 positions, $40,000 annual salary each [including superannuation].

Sales commissions: 4% of sales [excluding GST].

Admin staff: 1 manager [$95,000], 1 bookkeeper [$55,000], 1 receptionist [$40,000], all salaries given are annual and include superannuation.

Rent: $12,000 per month.

Other operating costs: $5500 per month.

Delivery costs: $130 per unit sold.

Assets [excluding GST]

Office furniture: Cost $75,000; expected residual $0; useful life 8 years; depreciation method straight-line; installed on 1 July 2020.

Factory equipment: Cost $775,000; expected residual $25,000; useful life 8 years; depreciation method straight-line; installed ready for use 31 July 2020.

Computers: Cost $65,000; expected residual $0; useful life 4 years; depreciation method reducing balance; installed ready for use 15 July 2020.

Loan from Big Bank

Banana Industries will borrow $300,000 at 4.5% p.a. compounding monthly. Repayments will be made each month, over a four-year loan term. The loan start date will be 1 July 2020.

Scenario #2

The marketing department at Banana Industries believes that by selling a slightly higher quality webcam system, a higher price and mark-up would be acceptable in the market. They have estimated that with an increased cost per unit [$3900] a mark-up of 70% would be achievable. To support this price increase, marketing and advertising expenditure would increase from 8% to 11%. Annual sales are expected to increase by 10 units compared to scenario #1.

Task to do

I have already done part a excel work. If any one can help me in part B.

Question

Part B

1) Advise your client on which scenario should be selected. Explain and justify why you would advise this selection

2)Comment on any variances between the scenarios

3) Explain the difference between straight-line depreciation and reducing balance depreciation to your clients

4) Prepare break-even analysis on the scenario you recommended in part B[1] above:

a. Calculate the break even analysis mathematically.

b. Show the break even analysis graphically.

c. Explain break-even analysis and why it is an important tool for business.

5) Produce a Pie Graph showing the break-up of all expenses in the under the scenario

recommended in part B[1] above. Comment on the pie graph

6) From your analysis provide your recommendation to the client with supporting evidence

(hints: consider contribution margins, NP and GP analysis, and the current economic outlook).

Scenario Planning Depreciation Calculations Inte Projected Projected Profit and Loss: 2020-21 Scenario 1 (S) Scenario 2 (5) Unit Calculations Cost of Goods (per unit) Mark up Sales Price (GST Excl) GST Sales Price (GST incl) 3750 65% 6,187.50 10% 6,806,25 3900 70% 6,630.00 10% 7.293.00 Number of Units 410 420 Revenue Less: Cost of Goods Sold GROSS PROFIT $2,536,875 1,537,500 999,375 $2,784,600 1,638,000 1,146,600 Expenses Wages (sales staff) Commission Wages (admin staff) Depreciation - Factory equipment Depreciation - Computers Depreciation - Office fit out Marketing Rent Operating costs Delivery costs Interest TOTAL EXPENSES 80,000 101,475 190,000 85,938 15,573 9,375 202.950 144.000 66,000 53,300 12,067 960,678 80,000 111,384 190,000 85,938 15,573 9,375 306,306 144,000 66,000 54,600 12,067 1,075,243 NET PROFIT 38,697 71,357 26.0% 26.0% Company Tax Rate Company Tax Payable 10,061 18,553 NPAT 28,636 52,804 Scenario Planning Depreciation Ca Depreciation Work sheet (for the entire life of each asset) Office Furniture Cost 75000 Salvage 0 Life 8 Depreciation Office Furniture $9,375.00 Factory Equipment Cost Salvage Life Depreciation Factory Equipment 775000 25000 8 $93,750 $85,938 Computers Cost Salvage Life Depreciation Computers 65000 0 4 16250 15573 Scenario Planning Depreciation Calculations Interest Calcuation of interest on loan Dale Loan Rate Number of Month Monthly repayment 1-Jul-20 $300.000 0.375% 48 $6,841.05 S12.067 Add interest Period Number 1 2 3 4 5 6 7 X 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Opening Balance $300.000 $294.284 S288 546 $282,787 $277.007 S271 205 $265.381 S259.535 S253.667 S247,777 $241.865 S235,931 $229,975 $223.996 $217,995 $211.972 S205.925 $199.857 S193,765 $187.651 S181,513 $175.353 S169.169 S162.963 SI56.733 SI50,480 $144.203 $137.903 SI31.579 S125.231 SIIX 360 $112.464 S106.045 $99.602 $93.134 586,642 SNO.126 $73,586 S67,020 S60,431 S53.816 $47.177 $40.913 $33.834 $27.110 $20,370 S13.606 S6,815 Repayments Closing Balance $1.125 $6,841.05 294283.95 S1.104 56,841.05 288546.47 S1.02 $6,841.05 282787.48 S1.060 $6,841.05 27700688 $1.039 $6,841.05 271204.61 $1,017 $6,841.05 265380.59 5995 56,841.05 259534.72 $973 $6,841.05 293666.93 5951 $6,841.05 247777.13 5929 S6,841.05 241865.25 $907 $6,841.05 235931.20 SUS S6,841.05 229974.89 $862 S6,841.05 223996.25 S80 S6,841.05 217995.19 $817 S6,841.05 211971.63 $795 $6,841.05 205925.48 $772 56,841.05 199856.65 $749 $6,841.05 193765.07 $727 S6,841.05 18765064 $704 $6,841.05 181513.29 5681 $6,841.05 175352.92 56,841.05 169169.44 $6,841.05 162962.78 5611 56,841.05 156732.85 5388 $6,841.05 150479.35 S564 S6,841.05 144202.80 5541 $6,841.05 137902.52 5517 $6,841.05 131578.61 5493 S6,841.05 125230.98 $470 S6,841.05 118859.55 S46 $6,841.05 112464.23 S422 $6,841.05 106044.92 $398 $6,841.05 99601.55 5374 56,841.05 93134.01 $349 $6,841.05 86642.21 $325 S6,841.05 80126.07 $300 $6,841.05 73585,50 5276 S6,841.05 67020:40 S251 S6,841.05 60430.68 5227 $6,841.05 53816.25 5202 56,841.05 47177.02 $177 $6,841.05 40512.88 SIS2 S6,841.05 33823.76 S127 $6,841.05 27109.56 SIO2 $6,841.05 20370.17 576 56,841.05 13605.51 SSI $6,841.05 6815.49 S26 56.841.05 -2.39197-10 42 43 44 45 46 Scenario Planning Depreciation Calculations Interest Calcuation of interest on loan Date Lean Rate Number of Month Monthly repayment 1-Jul-20 $300.000 0.375% 48 $6,84105 $12,067 Period Number ! 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 5681 Opening Balance Add interest $300,000 $294.284 $288.546 S282,787 $277.007 $271,205 $265.381 S259.535 $253.667 S247.777 $241.865 $235.931 $229,975 $223.996 $217.995 $211.972 S205.925 $199.857 $193,765 $187.651 $181.513 SI75.353 $169,169 S162.963 $156,733 $150,480 $144.203 $137.903 $131.579 S125.231 $118.860 $112.464 106.045 $99,602 $93.134 586.642 $80.126 $73,586 $67,020 $60,431 $53.816 $47.177 $40.513 $33,824 $27.110 $20,370 $13,606 $6,815 Repayments Closing Balance $1.125 $6,841.05 294283.95 $1.104 56.841.OS 288546 47 $1,082 $6,841.05 282787.48 $1.060 56,841.05 277006.88 $1.039 $6,841.05 271204.61 S1.017 $6,841 OS 265380 59 5995 $6,841.05 259534.72 5973 S6,841 OS 254666 93 $951 $6,841.05 247777.13 5929 $6,841.05 241865.25 $907 $6,841.OS 235931 20 SSRS 56,841.0S 229974.89 5862 $6,841.05 223996 25 5840 56,841.05 217995.19 $817 $6,841.05 211971.63 5795 S6,841.05 205925.48 $772 $6,841.05 199856.65 $749 56,841.05 193765 07 $727 $6,841.05 18765064 $704 56,841 OS 181513.29 $6,841.05 17535292 5658 S6,841.05 169169.44 $634 $6,841.05 162962.78 S611 S6,841.05 156732.85 $588 $6,841.05 150479 55 S564 S6,841.05 144202.80 $541 $6,841. OS 137902 S2 5517 S6,841.05 131578.61 $493 $6,841.05 125230.98 $470 S6,841 OS 118859.55 $446 $6,841.05 112464 23 S422 $6,841.05 106044.92 $398 $6,841.05 99601.55 5374 S6,841.05 93134.01 5349 $6,841.05 8664221 $325 S6,841.05 80126.07 $300 56,841.05 73585.50 $276 $6,841.05 67020.40 S251 $6,841 OS 60430 68 S227 $6,841.05 53816.25 5202 $6,841 OS 47177.02 $177 $6,841.05 40512.88 SIS2 56.841.05 33823.76 S127 $6,841.05 27109.56 S102 $6,841 OS 20370.17 576 $6,841.05 13605.51 SSI 56,841.05 6815.49 S26 $6,841.05 -2.39197c-10 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 43 45 46 47 48