Investor Report for Pet Supply Co

Pet Supply Co. 1 Investor Report for Pet Supply Co. Report for Pet Supply Co. Introduction Our Company’s name is Pet Supply Co, and we manufacture quality leashes, harnesses, and collars for pets. Now we are only producing one size for each product with the hopes to expand into all sizes within the next two years. Our goals are not to own stores and only sell all our products but to become a reputable name in the industry, so that other pet retail stores will purchase from us to then sell in their stores. Our goal is to become the largest harness, leash, and collar supplier for pets in North America by 2032. Purpose This report will elaborate on our financial statements over the first twenty days of business and show comparisons to what was projected before day one to now. This report will the budgeting and income accumulated over the last month of operations. We want to inform you of the company’s accomplishments over the last month and what still needs to improvement to reach our ten-year goal. The purpose of this report is to show our positive trajectory and with the continued support from wonderful investors we will be able to continue growing and climb to the top of our industry. Methods and Approach Finding which costing method works best for your business more times than not will make or break your business. This determines how your business’s expenses are tracked, and that will help ensures that your business’s budgeting and financial statements are accurate. Seeing as we use many different numbers of materials to produce our products, we decided to go with the job order costing method. This decision was made because it would simplify our complex manufacturing processes by allowing us to track costs based on which products we are producing. Report for Pet Supply Co. When we want to evaluate the company’s performance thus far, compared to our day one projections, we separated all expenses into variable and fixed costs. Fixed costs do not change, and variable costs can fluctuate depending on supply and demand. A key determining factor that led us to our costing method is that we can sort our fixed and variable costs by the product produced or the job being performed to produce that product. We calculated the contribution margin, show us how what we sell at our price can cover expenses, to find our breakeven point. The breakeven point is the number of sales we need to make to not be losing money on expenses, and as soon as you hit the breakeven point you are one sale away from profit. The American Institute of Certified Public Accountants has a code of six professional guideline/ethics that all CPA’s must uphold on a daily basis. These professional principles are as follows; responsibilities, scope and nature of service, serve the public interest, objectivity and independence, integrity, and due care. Upholding these values ensures that all everything is done in a non-bias and honest manner. Every business wants to uphold principles like these when preparing financials so that they may be transparent and done properly. Financial Strategy Report for Pet Supply Co. Costing System We all felt that the job order costing method was a perfect fit our business for a few key reasons. The production of our products involves various amounts of materials which leads a different costs for each leash, harness, and collar produced. The costing method will allow us to create different financials for each different product or the job of those producing the products, which will let us see expenses vs revenue for each unit. Selling Prices We decided to sell our harnesses for $35, our collars for $24, and our leashes for $22 each. We concluded that since other similar products are being sold for similar prices this was our best strategy to reach our breakeven point. The break-even analysis allowed us to see how many products we need to sell at our set prices to be able to cover our fixed and variable expenses. Based on our projected sales, not only would we breakeven each month, but we would be profitable. These projections are what gave us confidence to dive in and it paid off. Contribution Margin Milestone Two - Contribution Margin Analysis COLLARS LEASHES HARNESSES Sales Price per Unit $ 24.00 $ 22.00 $ 35.00 Variable Cost per Unit (9.10) (12.10) (14.60) Contribution Margin $ 14.90 $ 9.90 $ 20.40 Report for Pet Supply Co. To find the contribution margin we subtracted the variable cost per unit from the sales price of a product. The amount we have left after that equation is the contribution margin which is used to cover fixed costs. If the contribution margins is equal to or more than the fixed costs this is called the break-even point. After conducting a break-even analysis if you have higher projected sales than the breakeven point that means you a profitable, because the breakeven point shows when all expenses are covered. Target Profits Milestone Two - Break-Even Analysis COLLARS LEASHES HARNESSES Sales Price $ 24.00 $ 22.00 $ 35.00 Fixed Costs $ 4,028 $ 4,028 $ 4,202 Contribution Margin $ 14.90 $ 9.90 $ 20.40 Break-Even Units (round up) 271.00 407.00 206.00 Target Profit $ 300.00 $ 400.00 $ 500.00 Break-Even Units (round up) 291.00 448.00 231.00 Target Profit $ 500.00 $ 600.00 $ 650.00 Break-Even Units (round up) 304.00 468.00 238.00 Report for Pet Supply Co. The table above is our break-even analysis, which shows what our sales price per unit, fixed costs, the contribution margin, break-even units and target profit. When we set our target profits, we had to chose different numbers for each because each product has different expenses and are sold for different prices. For collars, we know that we need to sell 271 units during the month to break even. This is how many of our contribution margins per unit will cover our fixed costs for the month. We want to reach the $300 profit from the collars, so we add our fixed costs to our target profit and calculate how many units need to be sold to cover both expenses. If we sell 291 collars a month, we can meet our target profit. The 291 is only 20 more units than our breakeven point. Lastly, our $500 target profit for our collars comes to 304 units sold per month. Our projected units sold per day is 25 collars per day, which is much higher than any of our targets. Leashes have a lower price and therefore a lower contribution margin, but the fixed costs are the same as the collars. You guessed it, we need to sell more to meet our breakeven point and target profit. To break even with leashes, we need to sell 407 per month, or 14 per day. To reach our $400 target profit we need to sell 488 units per month. Lastly, to reach our highest target profit for leashes we would need to sell 468 per month to reach our goal of $600. Our final product is the harness with a break-even point of 206 per month. To reach our target profit of $500 we need to sell 231 harnesses per month. Finally, our highest target profit for all products is $650 and in order to meet that we need to sell 238 units per month. After conducting market research, we estimate that we are going to sell 20 harnesses each day, which is has allowed us to project being profitable each month. Financial Statements Report for Pet Supply Co. Statement of Cost of Goods Sold Milestone Three - Statement of Cost of Goods Sold Beginning Work in Process Inventory $ - Direct Materials: Materials: Beginning Add: Purchases for month of January 0 $ 20,000 Materials available for use Deduct: Ending materials 20,000 4,000 Materials Used 16,000 Direct Labor 8,493 Overhead 3,765 Total Costs $ Deduct: Ending Work in Process Inventory Cost of Goods Sold 28,258 0 $ 28,258 Report for Pet Supply Co. Cost of goods sold for our business’s first month comes to $28,528, which means our projections were incorrect. This is a direct correlation with the fluctuations in the costs of materials and increase of labor costs. Income Statement Milestone Three - Income Statement Revenue: Collars $ 13,440 Leashes 12,320 Harnesses 14,000 Total Revenue: $ 39,760 $ 11,502 Total Expenses $ 2,300.00 Net Income/Loss $ 9,202.00 Cost of goods sold 28,258 Gross profit Expenses: General and administrative salaries $ 1,950 Office supplies 200 Other business equipment 150 Report for Pet Supply Co. Based on the income statement, we can see that business’s net income for the first 20 days is equal to $9,202, which is excellent. The company outperformed our projections by the sale of 60 additional units. We sold more because there was a demand for our collars, and we did end up paying more for the direct labor costs but we still sold more than projected. Variances Milestone Three - Variance Analysis Data for Variance Analysis: Budgeted (Standard) Hours/Qty Budgeted (Standard) Rate Actual Hours/Qty Actual Rate Labor 160 $ 16.00 180 $ 16.50 Materials 600 $ 9.10 660 $ 10.00 Variances for Collar Sales Variance Favorable/ Unfavorable Report for Pet Supply Co. Direct Labor Time Variance (Actual Hours - Standard Hours) x Standard Rate $ 320.00 Unfavorable $ 90.00 Unfavorable $ 546.00 Unfavorable $ 594.00 Unfavorable Direct Labor Rate Variance (Actual Rate - Standard Rate) x Actual Hours Direct Materials Quantity/Efficiency Variance (Actual Quantity - Standard Quantity) x Standard Price Direct Materials Price Variance (Actual Price - Standard Price) x Actual Quantity The chart above shows what we planned on paying for cost of labor and materials for the collars versus what we did pay. The cost of labor increased from a normal 8-hour workday to a 9hour workday along with a $.50 cent pay increase, which was caused by an increasing demand for collars and the hard work our laborers put in. Those ended up increasing the direct labor time variance by $320, and the direct labor rate variance by $90, totaling in an increase of $410 to the paid labor force. Our material prices also increase, a collar went from costing $9.10 for production to $10. We did end up selling 60 more units than anticipated, which caused the direct martials quantity variance to be 546 and direct materials price variance to be 594. Significance of Variances Variances are classified as favorable or unfavorable, they are favorable if we come in under budget and the changes allowed us to save money. That was not the case for us, therefore our variances are classified as unfavorable. The unfavorable variance caused us to spend more than we planned, and there are many options for how to handle these changes in the Report for Pet Supply Co. coming months. We can adjust the budgets or even the price of our collars to account for the cost increase in materials. We spent $1460 more than we planned, but we also earned $1440 more than we predicted with the increase sales of collars. We still came away losing money over the increases. Our first 20 days are a good indication of how this company will continue to operate and succeed, especially considering the adjustments that will be made.