Valeria Gomez, Pierce McManus, Jordan Zenger.Accounting 1C

The Giving Flower

I. General Information

1. Industry/ Market Information

The Giving Flower is a small start-up company that produces and sells origami flowers

in several different farmers markets in the San Francisco Bay Area. These flowers are

perfect for any occasion as they provide amazing ambiance with zero required

maintenance or water in our current drought. Our business travels around setting up

our cart in a new location four times a week. We are initially planning on visiting the

farmers markets in San Jose, Los Gatos, Mountain View, and Los Altos. By going to these

markets we are accessing the consumer in a niche market. The potential market

penetration for these flowers is extremely high. As most of our competitors only

operate through an online presence we are beating them to the punch, with a small

operation that limits total overhead costs.

2. Customer Information

Our target customer population consists of people who frequent farmers markets. The

paper flowers that we produce fit perfectly into the vibrant setting that attracts

consumers to the farmers markets. The perfect customer is one who is environmentally

conscious that is perusing farm fresh organic produce through the farmers themselves.

These consumers are perfect for our company because they are willing to pay more

money for a product with higher perceived value. Our product, gorgeous paper flowers,

last much longer than regular flowers, providing a better value than fresh cut flowers

for a comparable cost.

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3. Competitor Information

There are no direct competitors in the San Francisco Bay Area. This means that there

are no stores or companies who are already using the idea allowing The Giving Flower

to have a large potential market share. There are several online competitors who sell

origami floral arrangements, but their prices are considerably higher than The Giving

Flower’s. This insures that the consumer’s costs are higher when purchasing through a

competitor, as you have to account for shipping costs, and in a world of instant

gratification, wait for delivery. Typically, at farmers markets, people are competing with

one another trying to sell food, but we are not in the market for food, so therefore we

can be price setters. We are solely competing with flower shops in local areas, which

allow us to know our competition intimately. To out produce, and to outdo these

aforementioned competitors, our company only has to highlight the immense benefits

reaped from purchasing our products in comparison to the alternative.

4. Product/Service Information

We fold, create, and sell paper flowers at farmers markets. We have a selection of

flowers for our customers to choose from that range in color. Our creations consist of

folded paper that we then attach to a stem and secure to a box or tie in a bundle. To

access multiple markets we offer the consumer three different products, bouquet, solo

flower, and an orchid, depending upon their need. In addition to this every flower or

flower arrangement we produce includes The Giving Flower’s business card. This card

includes contact information, along with the URL for our company’s website. The

Giving Flower offers unparalleled service in comparison to our competitors. When

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visiting The Giving Flower’s website you can see our upcoming schedule of cart

appearances, and also order a specialized bouquet or flower arrangement with your

choice of colors. This order can be either delivered on a specific day, or be picked up

from our cart if you expect to see us at the farmers market.

II. Technical Analysis

1. Cost Analysis

We identify several fixed cost for our three products. These fixed costs are calculated

monthly and include:

Fixed Costs Cost Quantity Total Cost

Transportation $0.60 400 $240Advertising $100.00 1 $100Website Maintenance $100.00 1 $100Overhead $60.00 1 $60Farmer's Market Monthly Fee (Rent) $60.00 4 $240Total Fixed Cost $740

We also identify our product’s variable costs. Each product incurs different variable costs.

The giving flower’s variable costs are:

Variable CostsTotal Cost Quantity Cost per Unit

Business Cards $9.99 500 $0.0200Tissue Paper $17.39 100 $0.1739Paper $20.38 1000 $0.0238Pipe Cleaners $17.99 100 $0.1800Box $1,500.00 1000 $0.7500Labor $10.00 30 $0.3300Ribbon $10.00 9000 $0.0010

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According to each product, the variable cost per unit is:

VARIBLE COST PER PRODUCTBouquet Solo Flower The Orchid

Item Total Cost

Quantity Cost/ Unit

Total Cost

Quantity Cost/ Unit

Total Cost

Quantity Cost/ Unit

Business Card $0.02 1 $0.0200 $0.02 1 $0.0200 $0.02 1 $0.0200Tissue Paper $0.17 2 $0.3478 $0.17 1 $0.1739 $0.17 2 $0.3478

Paper $0.02 12 $0.2856 $0.24 1 $0.2380 $0.24 6 $1.4280Pipe Cleaners $0.18 12 $2.1600 $0.18 1 $0.1800 $0.18 1 $0.1800

Box $0.00 0 $0.0000 $0.75 1 $0.7500 $0.75 1 $0.7500Labor $12.00 0.33 $3.9600 $0.33 1 $0.3300 $0.33 6 $1.9800

Variable Cost / Unit

$6.7734 $1.6919 $4.7058

We are estimating to sell in an average 1,200 units per month. By determining how many

units we would sell, we can identify the fixed cost per unit, therefore, our operating income

per unit.

Estimated Production after One Year of OperationsMonth Semester Year

$740.00 1 6 12Total fixed cost/ month $740 $4,440 $8,880

Expected Units 1200 7200 14400Fixed cost per unit $0.62 $0.62 $0.6167

After identifying our variable and fixed costs and analyzing our indirect competitors, we

could determinate the sale price per product.

Per Unit Bouquet Solo Flower OrchidSales Revenue $15.00 $4.50 $12.00Variable Cost $6.77 $1.69 $4.71Contribution Margin $8.23 $2.81 $7.29Fixed Cost -based on 1200 units- $0.62 $0.62 $0.62Operating Income $7.61 $2.19 $6.68

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Since The Giving flower produces and sells three different products, it is crucial to

determinate how much is the contribution margin per product based on the different

quantities sold per product. After analyzing our competitor we determinate that for every

five bouquets we sell, we also sell three solo flowers and two orchids.

Weighted Average Contribution MarginBouquet Solo Flower Orchid Total

Sale price per unit $15.00 $4.50 $12.00Variable cost per unit $6.77 $1.69 $4.71Contribution Margin per unit $8.23 $2.81 $7.29Expected Sale mix in units 5 3 2 10Contribution Margin $41.13 $8.42 $14.59 $64.15Weighted-average Contribution Margin (85.15/ 10) $6.41

Knowing the weighted-average contribution margin of our three products, we could

determinate the breakeven sales as follow:

Breakeven salesBouquet Solo Flower Orchid

Units 58 35 23Price per Unit $15.00 $4.50 $12.00Breakeven point in dollars $865.22 $155.74 $276.87Total Sales Revenue $1,297.83COGS PER unit $3.43 $1.98 $3.34COGS breakeven units $197.85 $68.48 $77.12Total Cost of breakeven sales $343.44COGS margin of sales 0.26

After determining the breakeven sales for our products, we could project our sales growth

for the first year based on the breakeven sales. We project that the first six months of

operations our sells will be 30% beyond the breakeven point. After six months of

operation, we expect our sales to increase 50% beyond the breakeven point. After one year

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of operations we expect to product and sell the initial estimated 1200 units, on which we

calculate our fixed cost per unit.

Projection of growth of sales based on Breakeven salesPercentage of Breakeven sales 30% 50%Amount expected $389.35 $648.91Total amount of sales $1,687.17 $1,946.74Increase of COGS $103.03 $171.72Total COGS $446.48 $515.17

COGS margin of sales 0.26 0.26

Since we want a higher operating income, we determinate that our sale prices could be

higher and still being competitive. Our final sales revenue for the first year of operation

based on the different increases will be:

30% above breakeven Bouquet Solo Flower Orchid TOTALMixed sale units 75 45 30 150Sale Price $18.00 $5.00 $15.00Sales revenue $1,349.74 $224.96 $449.91 $2,024.61COGS $257.21 $89.02 $100.25 $446.48

50% above breakeven Bouquet Solo Flower Orchid TOTALMixed sale units 87 52 35 173Sale price $18.00 $5.00 $15.00Sales revenue $1,557.39 $259.57 $519.13 $2,336.09COGS $296.78 $102.71 $115.68 $515.17

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2. Budgets

We calculated three operating budgets for our first two years of operations. The first

year of operation includes two operating budgets. The second year of operation

includes one operating budget. The three operating budges are as follow:

a) Operating Budget for the first six months of operations: July-December

2014

Sales Budget

The Giving Flower Sales Budget

July-December 201430% above breakeven

pointJuly August September October November December

July-Dec. Total

Cash Sales $2,021.61$2,021.6

1$2,021.61 $2,021.61 $2,021.61 $2,021.61

Total Sales 100%

$12,129.66

Inventory, Purchases and Cost of Goods Sold budget

The Giving FlowerInventory, Purchases, and Cost of Goods Sold Budget

July-December 201430% above breakeven point

July August September October November DecemberJuly-Dec

TotalC.O.G.S. (26% of Sales)

$446.48$446.4

8$446.48 $446.48 $446.48 $446.48 $2,678.88

Desired Ending Inventory

0 0 0 0 0 0

Total inventory Required

$446.48$446.4

8$446.48 $446.48 $446.48 $446.48

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Operating Expense Budget

Before we could prepare our operating expenses budget for the first three months, we had

to calculate the total variable cost of labor for the mixed products.

Budgeted income Statement:

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We use straight-line depreciation to determinate our depreciation expense of our cart.

We determined that the useful live is five years with zero residual value.

Straight line depreciationCart cost Years Depreciation expense Monthly Dep. Exp. 12

$1,896.00 5 $379.20 $31.60

b) Operating Budget for the second half six months of operations: January-

June 2015

Sales Budget

The Giving Flower Sales Budget

January-June 201550% above breakeven point

January February March April May JuneJan-June

Total

Cash Sales$2,336.0

9$2,336.09

$2,336.09

$2,336.09 $2,336.09$2,336.0

9Total Sales 100% $14,016.54

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Inventory, Purchases and Cost of Goods Sold budget

The Giving FlowerInventory, Purchases, and Cost of Goods Sold Budget

January-June 201550% above breakeven point

January

February March April May JuneJan-June

Total

C.O.G.S (26% of Sales)$515.17 $515.17 $515.17 $515.17

$515.17

$515.17 $3,091.02

Desired Ending Inventory

0 0 0 0 0 0

Total Inventory Required

$515.17 $515.17 $515.17 $515.17$515.1

7$515.17

Operating Expense Budget

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Budgeted Income Statement

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c) Operating Budget for the second year of operations: July 2015- June 2016

For the second year of operations, we expect our variable and fixed costs to increase by 3%

Increased Fixed Costs by 3% Cost Quantity Total Cost

Transportation $0.60 400 $247Advertising $100.00 1 $103Website Maintenance $100.00 1 $103Overhead $60.00 1 $62Farmer's Market Monthly Fee (Rent) $60.00 4 $247Total Fixed Cost $762

We also determine an increase of 3% of the cost of goods sold. The new amount of Cost of

Goods Sold for all three of our products is as follow:

BouquetSolo

FlowerOrchid

Cost of Goods $3.43 $1.98 $3.34Increased COGS by 3% $0.10 $0.06 $0.10Total Increased COGS $3.53 $2.04 $3.44

Estimated 1200 units BouquetSolo

Flower Orchid TOTALMixed Sales 600 360 240 1200Sale Price $20.00 $6.00 $17.00

Sales Revenue$12,000.0

0$2,160.00 $4,080.00 $18,240.00

COGS with 3% increase $2,119.74 $734.18 $825.65 $3,679.57

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Sales budget and Inventory, Purchases and Cost of Goods Sold July 2015-June 2015.

Operating Expense budget

Our company expects an annual growth of 75% after the first year of operations. Due to

this we have adapted our expense budget for the recurring year with an expected increase

of 20% in variable labor cost.

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Budgeted Income Statement

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