BTEC DIPLOMA IN BUSINESSUnit 3 – Financial Forecasting for Business

Unit 3.1 AssignmentInvestigating Financial Control

BTEC Unit 3.1 Assignment

Getting startedTo 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 2009). 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

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BTEC Unit 3.1 Assignment

Section One: Introduction Describe, using examples, the importance of costs, revenue (different types) and profit (different types) for a business organisation

(P1) (P2) (P3) (M1)

1. Produce a detailed power point presentation with notes 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 of start up costs which you think bright sparks may have incurred

A list of the operating costs which they now have (include fixed, and variable)

A definition of revenue and the possible sources of revenue

The formula to calculate total revenue

The formula to calculate gross profit and to calculate net profit

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

An explanation of why it is important for bright sparks limited to monitor costs, revenues and profit regularly

Due Date for Section 1: _______________________________________

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BTEC Unit 3.1 Assignment

Section Two: Break Even Calculate break even using given data to show the level at which income equals expenditure. (P4)

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

(P5)

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 £7000.

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

(M2)

3. Now change the selling price to be £80.00 per unit sold and 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.)

4. Now change your fixed costs to be £7500 and variable costs to be £55.00 per box; 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.)

5. 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.

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

(D1) - partial

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

Due Date for Section 2: _______________________________________

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BTEC Unit 3.1 Assignment

Section Three - Cash FlowPrepare an annual cash flow forecast using monthly data

(P6)

1. Using information from the case study use MS Excel to construct a cash flow for Bright Sparks for twelve months, starting from January 2009

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

(M3)

2. Look at the cash flow forecast 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.

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

Evaluate in writing, the importance of cash flow forecasts for effectively managing the finance of a business.

(D1) - partial

You may wish to consider:

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

The limitations of the cash flow forecast

Due Date for Section 3: _______________________________________

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BTEC Unit 3.1 Assignment

ChecklistIn order to make sure that you have included all of the evidence required in this assignment, use the following checklists to identify areas that you think you have covered. You MUST hand in all of the following evidence in order to complete the unit.

Evidence

Case study

Section 1 – Introduction

Section 2 – Break Even

Section 3 – Cash Flow

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