FINANCIAL PLAN

Financial Plan of New Energy Drink



Financial Plan of New Energy Drink

Introduction

We have decided to launch a new energy drink in the market, which is unique in a way that it is free of harmful chemicals and comprised nutritious herbs and vitamins that boosts energy level and helps in improvising the health of consumers. In order to initiate the business, we have developed the financial statements and conducted the financial analysis to determine the viability and profitability of the project. To begin with, we have generated specific business assumptions regarding sources of cost and sales on which the projected financial statements would base and these are listed below:

Business Assumptions

The total capacity of the company is to produce 252,000 per year.

The total fixed cost and variable cost that company would bear in the production of new energy drink is £75,700.00 and £539,280.00.

The variable cost covers the cost associated to the ingredients of the energy drink.

The company is financed by owner's equity and loan taken from bank worth £200,000 and £5000.

The company is expecting sales for the first month to be £74875.

The company purchased Machinery for £9000.

The price offered by the company for per unit of energy drink is £4.

Analysis of Marginal Costing Cost Statement

We have prepared marginal costing cost statement for the purpose of evaluating the profitability of the company over a year. Marginal Costing Cost represents the variable cost factor associated to per unit production of an item. The variable cost is comprised of direct labor, packaging, selling, admin and other expenses associated to the product. The statement prepared by following the principles of marginal costing for new energy drink shows that company would earn £4 for selling per unit of item, where as the variable cost associated to its production is £1.17, therefore, it provides a contribution margin of £2.83. On the other hand the Contribution margin after deducting the fixed coast as well is estimated to be £393020.00. At this point company produces 252,000 units of energy drinks and incurs £539,280.00 variable cost. Therefore, it is evident that company would be able to make enough profit after performing its operations and deducting variable and fixed costs. It is a good method for making internal decisions as there is not much significant effect on profit due to change in volume of production (Hoare, R., 2002, pp. 1-4).

Analysis of Break Even Point

The Break Even point is an efficient tool to determine the adequate level of sales at which there is no profit and neither loss. This is the point where, both fixed and variable cost become equal to sales. The core advantage of this analysis is that it explains the effect of changes in variable costs and fixed costs on sales volume and helps in determining the least required profit level to protect company from incurring losses (Levine, D. & Boldrin, M. 2008, pp. 312). The Break Even point for the new Energy Drink suggests that company would be neither incurring profits nor losses when it produces energy drinks ...