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Feasibility Study and Business Plan Development:

One vehicle for acquiring an understanding of the entrepreneurial process is through the preparation of a start-up business plan. The focus of this experience is to select a concept and create a complete and persuasive business plan. Writing a business plan requires you to ask tough questions about the nature of the business.

What are the benefits of your product or service?

What is the target market and how will you penetrate it?

How will you develop and produce the product or service?

What is required from the management team?

What are the risks of the venture and what can you do to reduce them?

What are the financial implications of the plan?

What resources, including funding, are required to successfully create the business plan?

To understand the related entrepreneurial process, students will take a hands-on approach. Students will decide upon a concept and develop a feasibility study after being approved. Based on that work, you will develop a comprehensive business plan. In most cases, the primary objective of your business plan will be to receive funding if you want to become an entrepreneur. Your plan will be prepared in three phases and you will submit the plan as a written and soft document and present it to the class.

Phase 1: Concept Approval – The initial task is to select and propose a business idea to the instructor for approval. ( Project type is Beauty Salon ).

Phase 2: The Feasibility Plan – This experience begins with the creation of a feasibility plan. This will evolve into a business plan that will be a tool to assist you to put the concepts we have addressed in class in action. Resources will be provided to help you with the plan, including software that can assist you through the process. After you propose and select the type of business and begin the process of assessing its feasibility and potential, the objective is to make this a positive, obtainable, and valuable experience.

Phase 3: The Business Plan – The course is designed to provide resources to assist you throughout the development of the plan. This includes the opportunity to review previous plans. You can “approach” a mentor that will be an industry or subject matter expert to assist you with the planning process.

The Written Plan: The body of the written business plan should be no more than 25 pages including the executive summary and all financial statements. The business plan’s financial section will include a complete set of financial statements (income statement, balance sheet, cash flow) for the initial three to five years of the venture. An assumption list will accompany the statements. Detailed spreadsheets and appendices can follow the text; however, the total plan should not exceed 30 pages.

Plans must include an explanation of the offering to investors that indicate the investment required, expected ROI, deal structure, marketing plan, operations plan, and management team description. Potential exit or company sustainability strategies also must be included.

Business Plan Presentation: Strong written and oral skills greatly facilitate success in the business world. Those individuals that can effectively communicate their ideas will have an advantage over those that cannot.

( Will be Project type is Beauty Salon ). Use an assumption list the statements

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Elin Hessel
Elin HesselLv2
28 Sep 2019

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You are the senior human resource professional in a company and part of the senior strategic management team. The company is a service company that operates five teleprofit centers of 300 representatives each in the following Florida cities: Jacksonville, Orlando, Gainesville, Tampa, and Miami. The CEO has asked the senior strategic team to develop a HR plan that will allow the company to grow by two more teleprofit centers, which will be located in Jacksonville, Florida.

Considering turnover, length of training, hiring success and learning curve for new employeesdevelop a reasonable “hire ahead” plan, which keeps newly trained employees ready to take the place of employees who leave or are promoted to other positions. The “hire ahead” plan must allow no more than 3% of the employee base in each of the new teleprofit centers to consist of newly trained employees.

The following factors should be considered while developing the plan:

• There is a human resource budget of $3.5M.

• From the HR Budget, $200K will be dedicated for recruiting and selection.

• Recruiting costs will increase by 30%, but the HR budget will not increase.

• Recruiting will be conducted through Monster, CareerBuilder, Sologig, and in various print publications in the listed cities.

• There will be 4500 applications received per month from the recruiting efforts.

• Average turnover of the teleprofit representatives in the company is 7% per month.

• Average turnover of the teleprofit representatives in Jacksonville is 5% per month.

• New representatives receive two weeks of training in the classroom and two weeks of “side-by-side” training before they are on their own.

• All trainer positions are exempt.

• It takes nine months for a representative to be considered “fully trained”.

SELECTION PROCESS

Choose as many, or as few, of the following steps to create the selection process that applies best to your plan. All applicants who pass these steps will be hired.

o Pre-screening- performed by a human resource assistant (nonexempt position) - cost of $20 per applicant; 95% of applicants prescreened are successful and are passed on to a recruiter.

o Interviewing- completed by a recruiter (exempt position) - cost of $70 per applicant; 50% of applicants who are interviewed are successful and are then tested. o Employee testing- administered by a human resource assistant- cost of $30 per applicant; 50% of those tested are successful and will have a drug screening check done.

o Drug screening- coordinated by a human resource assistant- cost of $35 per applicant; 95% will have a successful drug screening and then have a background check completed.

o Background check- coordinated by a human resource assistant using a third party contracted provider- cost of $25 per applicant; 60% will have a successful background check and will be submitted to a credit check.

o Credit check- conducted by a human resource assistant-cost of $35 per applicant; 60% will fail the credit check.

ISSUES TO ADDRESS

The following list represents a minimum guideline of issues that should be addressed:

 How does this current hiring process affect the successful filling of current position vacancies?

 What process changes can be made to help your budget concerns?

 How many new employees have to be hired each month to meet the objectives of the “hire ahead” plan?

 What is happening to the vacancy rate?  What is the vacancy rate?

 What can be done to improve your vacancy rate?

 What can be done to understand the turnover rate?

 What can be done to improve the turnover rate?

 How does this scenario affect the bottom line of the company?

Assignment #2– Case Study: Forecasting Financial Statements & Ratios Due Sunday Week 5

100 Points 

Students will construct a set of forecasted financial statements and calculate a set of financial ratios for a start-up business.

Note: Please read the documents related to forecasting financial statements under Documents & Resources in Week 4. Additionally, search online for information regarding forecasting financial statements. [Don’t skip this step! It will provide background context and insight into what you’ll be doing for this assignment.] You will notice that there are many methods to use to forecast financials. Some are quantitative while others are qualitative. Often times, a mix of the two are used. There is no one exact way to perform forecasting. 

For the purpose of this assignment, you will be relying on the directions given under ‘Forecasting Assumptions’ to complete the Excel workbook. 

Case Overview

Janelle Higgins has decided to start her own event planning business (JH Events) in the upcoming year. She believes that she has an innovative business model and is seeking a business loan. Therefore, Janelle is in the process of putting together a business plan. As part of her business plan, Janelle must include forecasted financial statements for the first 5 years. The forecasted financial statements to be included are: Income Statement, Balance Sheet, and Statement of Cash Flows. Janelle must also include a set of calculated ratios along with an overall assessment on the projected health of the company.

Forecasting Assumptions

  • First year sales are projected to be $150,000 and grow 3% for the next two years and 5% in year 4 and 5.
  • Cost of sales are projected to be 45% of revenue in the first year and is expected to grow at the same rate as sales.
  • Advertising expenses are projected to be 4% of each year’s projected revenue.
  • Janelle will need to rent equipment for the events she puts on. She has an agreement with a rental company for a flat rate of $500 per month and is sufficient to cover all of her estimated events. Starting in Year 3, she expects to be able to handle more events and the rental rate will increase to $750 per month.
  • Janelle plans to start off by hiring 2 people to work the events with her. Each person will be paid $100 per event and is expected to work 4 events per month. After Year 3, Janelle plans to hire 2 additional people. (At this point, each person will be paid $100 per event and is expected to work 3 events per month).
  • Office rent is estimated to be a flat rate of $1,200 per month.
  • Utilities for the rented office space are estimated to be $300 per month.
  • The office space Janelle plans to rent is unfurnished. She plans to purchase $15,000 worth of furniture and fixtures at the beginning of Year 1. The furniture and fixtures will have a useful life of 15 years. Janelle will also need to buy some computers and other office equipment that she will purchase for $10,000 also at the beginning of Year 1. The office equipment will have a useful life of 5 years. Both the furniture and fixtures as well as the equipment will be depreciated on a straight-line basis (Assume zero salvage value for calculations). HINT: Fixed Assets – Accumulated Depreciation = ‘Net’ Fixed Assets
  • Janelle is asking for a 3-year bank loan for $60,000 to be funded on Day1 of Year 1. The estimated interest on the loan is 3% (assume simple interest). She will pay the loan back in $20,000 installments starting in Year 2. Interest is due at the end of each year and paid in January of the following year. (Assume interest is paid on the principal balance still outstanding at year-end).
  • The tax rate for JH Events is 35%. Taxes for the year just ended are payed in the first quarter of the following year.
  • Janelle will invest $30,000 of her own money and from family and friends, before the beginning of the year, to start the business. This $30,000 investment of capital is also the beginning bank balance of Year 1.
  • Schedule of expected year-end balances of selected accounts:

 

 

Year 1

Year 2

Year 3

Year 4

Year 5

Accounts Receivable

10,000

12,000

8,000

6,000

10,000

Accounts Payable

2,000

4,000

5,000

6,000

9,000

Customer Deposits

1,500

2,000

3,000

4,000

5,000

  • At the end of Year 2, Janelle will purchase an insurance policy to help cover the business. The policy has a term of 3 years and coverage starts at the beginning of Year 3. The policy costs $12,000.
  • During Year 3, Janelle plans to personally invest $10,000 of additional capital into the business.

 

Chart of Accounts

All accounts listed here should be included in your financial statements. 

  • Cash
  • Accounts Receivable
  • Prepaid Insurance
  • Furnitures & Fixtures
  • Equipment
  • Accounts Payable
  • Customer Deposits
  • Interest Payable
  • Taxes Payable
  • Bank Loan
  • Capital
  • Retained Earnings
  • Revenue
  • Cost of Sales
  • Advertising
  • Equipment Rental
  • Wages
  • Office Rent
  • Utilities
  • Insurance Expense
  • Depreciation
  • Interest Expense
  • Income Taxes

 

8-47 Target costing Mercedes-Benz All-Activity Vehicle(AAV)

Introduction

During the recession beginning in the early 1990s, Mercedes-Benz(MB) struggled with product development, cost efficiency, materialpurchasing, and problems in adapting to changing markets.

In 1993, these problems caused the worst sales slump in decades,and the luxury car maker lost money for the first time in itshistory. Since then, MB has streamlined the core business, reducedparts and system complexity, and established simultaneousengineering programs with suppliers.

In their search for additional market share, new segments, andnew niches, MB started developing a range of new products. Newproduct introductions included the C-Class in 1993, the E-Class in1995, the new sportster SLK in 1996, and the A-Class and M-ClassAll-Activity Vehicle (AAV) in

1997. Perhaps the largest and most radical of MB's new projectswas the AAV. In April 1993, MB announced it would build its firstpassenger vehicle-manufacturing facility in the United States.

The decision emphasized the company's globalization strategy anddesire to move closer to its customers and markets.

Mercedes-Benz United States International used function groupswith representatives from every area of the company (marketing,development, engineering, purchasing, production, and controlling)to design the vehicle and production systems. A modularconstruction process was used to produce the AAV. First-tiersuppliers provided systems rather than individual parts orcomponents for production of approximately 65,000 vehiclesannually.

The AAV Project Phases

The AAV moved from concept to production in a relatively shortperiod of time. The first phase, the concept phase, was initiatedin 1992. The concept phase resulted in a feasibility study that wasapproved by the board. Following board approval, the projectrealization phase began in 1993, with production commencing in1997. Key elements of the various phases are described next.

ConceptPhase,1992-1993

Team members compared the existing production line with variousmarket segments to discover opportunities for new vehicleintroductions. The analysis revealed opportunities in the rapidlyexpanding sports utility vehicle market that was dominated by Jeep,Ford, and GM. Market research was conducted to estimate potentialworldwide sales opportunities for a high-end AAV with thecharacteristics of a Mercedes-Benz. A rough cost estimate wasdeveloped that included materials, labor, overhead, and one-timedevelopment and project costs. Projected cash flows were analyzedover a 10-year period using net present value (NPV) analysis toacquire project approval from the board of directors. Thesensitivity of the NPV was analyzed by calculating "what-if"scenarios involving risks and opportunities. For example, riskfactors included monetary exchange rate fluctuations, differentsales levels due to consumer substitution of the AAV for another MBproduct, and -product and manufacturing costs that differed fromprojections. On the basis of the economic feasibility study of theconcept phase, the board approved the project and initiated asearch for potential manufacturing locations. Sites located inGermany, other European countries, and the United States wereevaluated. Consistent with the company's globalization strategy,the decisive factor that brought the plant to the United States wasthe desire to be close to the major market for sports utilityvehicles.

Project Realization Phase,1993-1996

Regular customer clinics were held to view the prototype and toexplain the new vehicle concept. These clinics produced importantinformation about how the proposed vehicle would be received bypotential customers and the press. Customers were asked to rank theimportance of various characteristics, including safety, comfort,economy, and styling. Engineers organized in function groupsdesigned systems to deliver these essential characteristics.However, MB would not lower its internal standards for components,even if initial customer expectations might be lower than the MBstandard. For example, many automotive experts believed that thesuperior handling of MB products resulted from manufacturing thebest automobile chassis in the world. Thus, each class within theMB line met strict standards for handling, even though thesestandards might exceed customer expectations for some classes. MBdid not use target costing to produce the lowest price vehicle inan automotive class. The company's strategic objective was todeliver products that were slightly more expensive than competitivemodels. However, the additional cost would have to translate intogreater perceived value on the part of the customer.

Throughout the project realization phase, the vehicle (andvehicle target cost) remained alive because of changing dynamics.For example, the market moved toward the luxury end of the spectrumwhile the AAV was under development. In addition, crash testresults were incorporated into the evolving AAV design. For thesereasons, MB found it beneficial to place the design and testingteam members in close physical proximity to other functions withinthe project to promote fast communication and decision making.Sometimes new technical features, such as side air bags, weredeveloped by MB. The decision to include the new feature on all MBlines was made at the corporate

level because experience had shown that customers' reactions toa vehicle class can affect the entire brand.

ProductionPhase,1997

The project was monitored by annual updates of the NPV analysis.In addition, a three-year plan (including income statements) wasprepared annually and reported to the headquarters in Germany.

Monthly departmental meetings were held to discuss actual costperformance compared with standards developed during the costestimation process. Thus, the accounting system served as a controlmechanism to ensure that actual production costs would conform totarget (or standard) costs.

Target Costing and the AAV

The process of achieving target cost for the AAV began with anestimate of the existing cost for each function group. Next,components of each function group were identified with theirassociated costs. Cost reduction targets were set by comparing theestimated existing cost with the target cost for each functiongroup. These function groups included the following: doors,sidewall and roof, electrical system, bumpers, power train, seats,heating system, cockpit, and front end. Next, cost reductiontargets were established for each component. As part of thecompetitive benchmark process, MB bought and tore down competitors'vehicles to help understand their costs and manufacturingprocesses.

The AAV manufacturing process relied on high-value-added systemssuppliers. For example, the entire cockpit was purchased as a unitfrom a systems supplier. Thus, systems suppliers were part of thedevelopment process from the beginning of the project. MB expectedsuppliers to meet established cost targets. To enhance functiongroup effectiveness, suppliers were brought into the discussion atan early stage in the process. Decisions had to be made quickly inthe early stages of development. The target costing process was ledby cost planners who were engineers, not accountants.

Because the cost planners were engineers with manufacturing anddesign experience, they could make reasonable estimates of coststhat suppliers would incur in providing various systems. Also, MBowned much of the tooling, such as dies to form sheet metal, usedby suppliers to produce components. Tooling costs are a substantialpart of the one-time costs in the project phase.

Index Development toSupportTarget Costing Activities

During the concept development phase, MB team members usedvarious indexes to help them determine critical performance,design, and cost relationships for the AAV.To construct theindexes, various forms of information were gathered from customers,suppliers, and their own design team.Although the actual number ofcategories used by MB was much greater, Table 1 illustrates thecalculations used to quantify customer responses to the AAVconcept. For example, values shown in the "Importance" columnresulted from asking a sample of potential customers whether theyconsider each category extremely important when considering thepurchase of a new MB product. Respondents could respondaffirmatively to all categories that applied.

To gain a better understanding of the various sources of costs,function groups were identified together with target costestimates. (MB also organizes teams called function groups whoserole is to develop specifications and cost projections.) As shownin Table 2, the relative target cost percentage of each functiongroup was computed.

Table 3 summarizes how each function group contributes to theconsumer requirements identified in Table 1. For example, safetywas identified by potential customers as an importantcharacteristic of the AAV; some function groups contributed more tothe safety category than others. MB engineers determined thatchassis quality was an important element of safety (50% of thetotal function group contribution).

Table 4 combines the category weighting percentages from Table 1with the function group contribution from Table 3. The result is animportance index that measures the relative importance of eachfunction group across all categories. For example, potentialcustomers weighted the categories of safety, comfort, economy, andstyling as 0.41, 0.32, 0.18, and 0.09, respectively. The rows inTable 4 represent the contribution of each function group to thevarious categories. The importance index for the chassis iscalculated by multiplying each row value by its correspondingcategory value and summing the results: (0.50 X 0.41) + (0.30 X0.32) + (0.10 >< 0.18) + (0.10 X 0.09) = 0.33.

As shown in Table 5, the target cost index is calculated bydividing the importance index by the target cost percentage byfunction group. Managers at MB used indexes suchas these during the concept design phase to understand therelationship of the importance of a function group to the targetcost of a function group. Indexes less than 1 may indicate a costin excess of the perceived value of the function group. Thus,opportunities for cost reduction consistent with customer demands,may be identified and managed during the early stages of productdevelopment.

Choices made during the project realization phase were largelyirreversible during the production phase because approximately 80%of the production cost of the AAV was for materials and systemsprovided by external suppliers.

The AAV project used a streamlined management structure tofacilitate efficient and rapid development. The streamlined MBorganization produced an entirely new vehicle from concept toproduction in four years. Using the target costing process as a keymanagement element, MB manufactured the first production AAV in1997.

Required

(a) What is the competitive environment faced by MB as itconsiders launching the AAV?

(b) How has MB reacted to the changing world for luxuryautomobiles?

(c) Using Cooper's cost, quality, and functionality chart, 15discuss the factors on which MB would have to compete with otherautomobile producers, such as Jeep, Ford, and GM.

(d) How does the AAV project link with MB's strategy in terms ofmarket coverage?

(e) Explain the process of developing an importance index for afunction group or component.

How can such an index guide managers in making cost reductiondecisions?

(f) How does MB approach cost reduction to achieve targetcosts?

(g) How do suppliers factor into the target costing process? Whyare they so critically important to the success of the MB AAV?

(h) What role does the accounting department play in the targetcosting process?

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