Abstract
The purpose of this business project is to come up with a company intended to produce
cat food starting the year 2021. The projected company will be Mew Mew Company and it will
be established in Guiyang city, Ganzhou Province in China. This is because the area is known for
its cheap labor and this will be an added advantage to the projected company. The context is
analyzing various procedures of starting up and running the Mew Mew company from the year it
will start to the year 2023. First, it analyzing the startup cost analysis which involves the
estimation of the costs that will be incurred in establishing the company. Also, it involves
conducting a cost-benefit analysis where the project aims at systematically estimating all the
costs that will be incurred to run the business and determine if the business will be sound. The
break-even analysis was also conducted to analyze whether the company can cover its fixed
costs. This is done to establish by determining the number of fixed costs as compared to the
profit that the firm earns from each unit which is produced and later sold. A C-V-P analysis to
examine how variable costs affect operating profits. Also, the context analyzed the proforma
statements which are based on assumption and used to make projections of the financial
performance of a company. Finally, it contains a discussion which examines whether the firm
will be profitable or no. This is done by analyzing the various projected financial statements
where all of them came up to the same point at the end of year 2023 showing that the company
will be sustainable and making profits as illustrated by the financial position, financial
performance, and cash budget for the three years. Mew Mew company will be favored by the
economic status of China and that of the entire World even though there are financial crisis due
to the pandemic.
3
MEW MEW CAT FOOD PRODUCTION
Introduction
This business aims at producing cat food because the number of cats increased because of
the need for pets to accompany people due to the Covid-19 epidemic thus the need to produce cat
food. Mew Mew company, therefore, intends to invest in manufacturing cat food starting from
January 2021. Because of economic development, consumption power has improved, and
therefore creating the need for not only paying attention to price but also paying attention to
quality (Palepu, et.al., 2020). This business is its brand and will be located in Guiyang city,
Guizhou Province in China. The domestic market is more dependent on foreign brands and
therefore the business will focus on coming up with their brand which will deal with
manufacturing cat food. The business will use raw materials to make finished goods which is cat
food. the product will be sold to consumers who we expect to be cat owners both in china and
other countries. The business will be established in Guiyang city where labor cost is cheap, so
the assembly line manufacturing process will be used since there is quicker and cheap manual
labor to put together in sequence from one work station to the next.
The business is expected to be successful because; the business will have a competitive
advantage that other companies since there are few in china which produces cat food. The food
will be on high demand because it will focus on the health of cats and not focused mainly on, the
price of the product. Compare to imported cat food, domestic produced cat food will be cheaper
since imported food is attached to extra expenses such as import tax, freight charges and customs
duties. The food will be in organic form, which is mostly preferred by Chinese farmers and will
also provide better ratios for the cats. Some imported cat foods are not approved for sale in China
and can only be bought through private agents or online shopping. Other costs have increased
very high, and there are fewer purchase channels, which lead to the growth of fake products to
supplement demand.
The company does not expect any expenses on advertising so if the company incurs any
expense on advertising, this will be an added expense and this will reduce the projected income
for the company. The company will also hope that the rent will not increase for the three years
even though there are cases in the context that caters for any changes in the rent to be incurred.
Failure of management and production processes is also not catered for so this business project is
4
MEW MEW CAT FOOD PRODUCTION
said to be optimistic since it directs its purposes only on the favorable sectors such as increased
sales not to mention the case that would arise if there was a decrease in sales.
Competition is expected from foreign major brands and domestic brands such as brands
with different positioning, but the business will have competitive advantages. The business
location is in Guiyang city where there is cheap labor and this will be an added advantage to the
company compared to foreign competitors where cheap labor may be unavailable to them. The
own brand of the company will give it a competitive advantage other than the foreign brands
since it is organic food which is mostly preferred by Chinese cat owners.
The business will be financed partially by debt and partially by equity. Financing by debt
will be prioritized since the ownership is retained unlike by equity where ownership is divided
among the shareholders. There is also tax exemption in profits made by a company financed by a
dept which is not the case for companies financed with equity.
STARTUP AND COST ANALYSIS
When establishing a new business, start-up costs are incurred. Startup cost can be defined as
those costs and expenses that the company will incur during its establishment. Examples of these
costs may include costs such as costs of borrowing, technological expenses costs, expenses and
research, and expenses incurred on formulating a plan for the business. Startup cost can be
divided into pre-opening and post-opening costs. Pre-opening costs at startup are costs such as
research costs and costs of borrowed capital. Post opening costs are costs such as costs incurred
in product promotion, product advertisement and payment of employees. Startup costs vary
depending on the company and each company has its different startup costs. Mew Mew company
will incur pre-opening costs such as cost of machinery, planning costs, legal fees, consulting
fees, and research costs. The company will also incur startup costs such as costs that will be
incurred in product promotion and payment to employees.
The following are Mew Mew company startup costs:
cost of machinery and equipment
planning cost,
5
MEW MEW CAT FOOD PRODUCTION
property plant and buildings 50000
legal fees,
consulting fees
al the above-listed costs were catered for in the expenses
operational costs
sales commission 15300
salaries 6000
admin salaries 7000
freight out 1700
rent 86700
depreciation 4750
utilities 8000
plant 50000
legal consulting registration fees
COST/BENEFIT ANALYSIS
Cost-benefit analysis is a technique applied by organizations to establish and compare the totals
of benefits that the firm will enjoy such as profits, compared to the costs or expenses that it will
incur in the course of operation. This analysis is mainly applied when a business wants to decide
on the direction or action to take and involves calculations of the total benefits against the total
costs.
Total cost =3628300
Total sales=5094000
6
MEW MEW CAT FOOD PRODUCTION
The business will be profitable because the total expected sales exceed the total expected cost
making it able to cover for the costs.
The business will make a profit of $1465700
From the above figures, the benefits outweigh the costs at a ratio of 1.4 which is resourceful to
the firm. The advantages of this are to help Mew Mew company to determine the course of
action that it will undertake. The cost-benefit analysis aids/helps the firm in determining the
impact that will be caused by the decisions it chooses.
The difference between the total costs and total benefits guides the firm on whether the decisions
made are viable/feasible and in our case, the difference between the and benefits and costs is
+1465700
This shows that the company will be profitable and the decisions made are feasible.
Swot analysis
Strengths;
The business engages in the production of high-end products.
This will ensure that there is a marginal increase in the number of sales per annum since the
produced goods, in this case, is cat food and it is a high-end product most especially during this
period of establishment.
The raw materials are readily available.
The company strategically positioning gives it an already existing availability of raw material
which will sustain the project during the entire period of production.
There are no tariffs incurred since the business operates produces domestically.
The business will enjoy its profits since there are no tariffs.
Weaknesses
The business will experience the following challenges;
7
MEW MEW CAT FOOD PRODUCTION
The targeted population may be irrelevant since the business have not been in operation and
hence cannot effectively predict the market of the product.
the factory may not be strategically located since it is not located since locating it on the capital
city of China, Beijing would probably be more strategic other than Guizhou.
Inexperienced leadership might be one of the big challenges the company might face in its
operation.
Poor internal systems might lead to an entire system failure which means that the entire
production process will be terminated and this might cause a huge effect on the firm which may
even lead to closure.
Opportunities
The businesses operations are expected to be successful since there is lesser competition from
domestic companies.
The prices of raw material are expected to be cheap as the acquisition is made domestically and
favourable shopping trends of the customers.
The company may find itself at a better position than other competitors because it engages in the
production of organic cat food which is more preferred by Chinese farmers.
Threats
Threats include potential unfavorable changes in government policies
Unfavorable changes in the requirements of the market
Unestablished supply chain problems since the company are coming into the market for the first
time and it has not established its supply.
Other companies may also need to venture in the production of organic cat food which may lead
to unfavorable competition and this would reduce profits.
BREAKEVEN ANALYSIS
Break-even point in dollars=2,541.49×$90=$228,734.10per year
8
MEW MEW CAT FOOD PRODUCTION
MEW MEW COMPANY
Fixed cost Variable cost
Rent $ 86,700 Direct materials-beef $
30
Depreciation $ 4,750 Direct labor $
2
Factory repairs and
maintenance $ 7,000 Variable overhead
Utilities $ 8,000 Utilities $ 0.3
Total fixed factory
overhead $ 106,450 Packaging $ 0.2
General and administrative
expenses $ 7,000
Indirect materials-
Vitamin, Bean $ 0.5
Sales salaries $ 6,000 Total variable overhead $
1
Variable operating cost
Freight-out $
1
Sales commission
(＄90× 10％）
$
9
Total fixed cost $ 119,450 Total variable cost $
43
Selling price: $90 per unit
Variable costs: $43per unit
Fixed costs (per year): $119,450
Contribution margin per unit=selling price – total variable cost per
9
MEW MEW CAT FOOD PRODUCTION
unit=$90-$43=$47
Contribution margin ratio=contribution margin per unit / selling price per
unit=$47/$90=52.22%
Break-even point in units=fixed cost/contribution margin per unit=$119,450/$47=2,541.49 unit per year
Break even units =fixed costs/(selling price -variable costs)
Which =119450/(90-43)
=2542 units
CVP chart
01500270039005100630075008700990011000
Volume (Units)
#,##0_);[Re30](#,##0)
#,##0_);[Re30](#,##0)
#,##0_);[Re27](#,##0)
#,##0_);[Re28](#,##0)
#,##0_);[Re27](#,##0)
#,##0_);[Re26](#,##0)
#,##0_);[Re26](#,##0)
CVP Chart
Fixed costs Total costs Total sales
In the graph above, the blue line represents the total fixed costs.
10
MEW MEW CAT FOOD PRODUCTION
The red line represents the total cost, while the grey line represents the total sales,
The break-even point is the point where the total costs line intersects with the total revenue line.
the two lines intersect at $22870 on the y-axis and 2542 units at the x-axis.
BREAK-EVEN GRAPH ANALYSIS
Break-even analysis is done to establish the number of units produced or revenue generated that
a company can cater to its costs without making profit or loss.
In break-even analysis, three elements are considered to determine the break-even point. These
elements include the fixed cost of production, the selling price per unit and the variable cost per
unit.
Fixed costs are the costs that the company must incur and do not vary depending on the
production. these costs include costs such as rent and salaries to staff to staff and employees.
Selling price per unit is the price at which a unit of the product will be sold.
Variable costs are the costs which are mot fixed and can be varied depending on the production.
In the graph above, the selling price per unit is set at $90. This is the price at which a unit of the
cat food produced by Mew Mew Company will sell in the market.
The variable cost incurred in producing each unit of cat food is $43 per unit.
The company is also expected to incur a fixed cost of $119450. Fixed cost is derived from
subtracting all the variable costs from the total costs.
Break-even quantity is therefore calculated from dividing the fixed costs by the difference
between selling price per unit and the variable cost per unit as calculated above the graph.
The company, therefore, breaks even when it produces 2542 units and selling them at $90 per
unit.
This means that the company will be able to cover its expenses without making profit or loss
after producing 2542 units.
11
MEW MEW CAT FOOD PRODUCTION
The company needs to make (2542 units*$90) = $228780 to cater for its costs without making
profit or loss.
If the total units produced exceed 2542 units, the company will be making a profit while if the
units produced fall below 2542, then the company will be making a loss. At 2542, the company
will be at break even.
Cost Volume Profit Analysis
Factors that will affect the break-even point.
Changes in rent from $86700 to $100000 and this will affect the total revenue.
Reduce the selling price from $90 per unit to &80 per unit.
New fixed costs= $132750
New selling price= $80
New break even = fixed costs/(selling price -variable costs)
= $132750/(80-43)
=$3588 units
CVP Analysis of the new break-even point
12
MEW MEW CAT FOOD PRODUCTION
In the graph
above, the
blue line
represents the
total fixed
costs.
The red line
represents the
total cost,
while the grey
line represents the total sales,
The break-even point is the point where the total costs line intersects with the total revenue line.
the two lines intersect at $287040 on the y-axis and 3588 units at the x-axis.
01500270039005100630075008700990011000
Volume (Units)
#,##0_);[Re30](#,##0)
#,##0_);[Re14](#,##0)
#,##0_);[Re30](#,##0)
#,##0_);[Re15](#,##0)
#,##0_);[Re27](#,##0)
#,##0_);[Re12](#,##0)
#,##0_);[Re28](#,##0)
#,##0_);[Re13](#,##0)
#,##0_);[Re27](#,##0)
#,##0_);[Re11](#,##0)
#,##0_);[Re26](#,##0)
CVP Chart
Fixed costs Total costs Total sales
13
MEW MEW CAT FOOD PRODUCTION
Proforma Financial Statements
Pro-forma Income statement
MEW MEW COMPANY
Budgeted Income Statement
For Years Ended December 31, 2021,2022,2023
2021 2022 2023
Sales $ 153,000 $
360,000
$
630,000
Cost fo goods sold $
74,154
$
174,480
$
305,340
Gross profit $
78,846
$
185,520
$
324,660
Operating expenses
Sales commissions $
15,300
$
36,000
$
63,000
Sales salaries $
6,000
$
6,000
$
6,000
Administrative salaries $
7,000
$
7,000
$
7,000
Freight-out $
1,700
$
4,000
$
7,000
Income before income taxes $
48,846
$
132,520
$
241,660
Income tax expense（20％） $ 9,769.20 $ $
14
MEW MEW CAT FOOD PRODUCTION
26,504.00 48,332.00
Net income $ 39,076.80 $
106,016.00
$
193,328.00
15
MEW MEW CAT FOOD PRODUCTION
Pro-forma statement of cashflows
MEW MEW COMPANY
Cash Budget
2021-2023
2021 2022 2023
Beginning cash balance $ – $ 194,720 $ 294,154
Add:Cash receipts from customers $ 147,700 $ 193,500 $ 246,600
Total cash available $ 147,700 $ 388,220 $ 540,754
Less: Cash payments for
Direct materials $ 14,000 $ 54,126 $ 75,914
Direct labor $ 3,120 $ 4,760 $ 5,780
Variable overhead $ 1,560 $ 2,380 $ 2,890
Sales commissions $ 15,300 $ 19,800 $ 25,200
Sales salaries $ 6,000 $ 6,000 $ 6,000
Genaral and administrative expenses $ 7,000 $ 7,000 $ 7,000
Income taxes payable
Dividends
Interest on bank loan
2022 ( 12％ × ＄50,000) $ 6,000
Total cash payments $ 52,980 $ 94,066 $ 122,784
Preliminary cash balance $ 244,720 $ 294,154 $ 417,970
Loan activity
An additional loan from the bank
Repayment of loan to the bank $ 50,000
Ending cash balance $ 194,720 $ 294,154 $ 417,970
Loan balance, end of year $0 $0 $0
16
MEW MEW CAT FOOD PRODUCTION
Pro-forma Balance sheet
MEW MEW Company
Balance Sheet
For year 2021,2022,2023
2021 2022 2023
Assets
Current assets
Cash $
200,700.00
Accounts receivable $
15,300
$
36,000
$
63,000
Raw materials inventory 13230×3.33 44055.9
Finished goods inventory 1200×43.62 52344
Total current assets 312399.9
Non-current assets
Plant assets (property, plant and equipment) 50000 50000 50000
Less: Accumulated depreciation 4750 9500 14250
Plant assets (net of depreciation) 45250 40500 35750
Total assets 357649.9
Liabilities
Current liabilities
Accounts payable $
130,968.90
Interest payable
Total current liabilities $
130,968.90
Non-current liabilities
17
MEW MEW CAT FOOD PRODUCTION
Bank loan
Total liabilities 130968.9
Equity
你的名字, Capital (opening balance) 0
Add: Investments 150000
Add: Profit $
39,076.80
Less: Loss
Less: Drawings
你的名字, Capital (closing balance) 189076.8
Total equity 189076.8
Total liabilities and equity 320045.7
18
MEW MEW CAT FOOD PRODUCTION
Discussion
Analysis
Proforma income statement analyses the businesses expenses and incomes to ascertain the profit
or loss that the business made during a particular financial year. According to the proforma
income statement of Mew Mew, sales were projected to increase over the years, this led to an
increase in net income since the expenses were projected to increase at a slow rate.
Proforma balance sheet statement shows the financial position of the business. The statement
shows the current and non-current assets, long term and short-term liabilities and finally equity
of the company.
Proforma cashflow statements show the investment activities, financial activities and operating
activities of the company. From our projections, the investment activities, financial activities and
operating activities of Mew Mew company are progressive.
Cost/Benefit analysis was done to analyze the impact of the decisions made by the firm and the
course of action to be undertaken. From the results, the firm will be successful since the total
benefits that it will derive from its operations outweigh the total costs incurred.
From the balance sheet, the total asset is outweighing total liabilities. The total assets are at
$357469 while the total liabilities are$130968. It also shows that the total current assets
outweigh the total non-current assets which are better for the firm. By dividing the current assets
by the current liabilities, we find the current ratio of 2.39 which illustrates that the firm is at a
better financial position.
Possible Outcomes
The business will be profitable as expected.
This is because has already reached a break-even so the costs have been catered for and thus it
will sustain itself in the coming years.
The company has more assists as compared to liabilities as evident in the balance sheet. These
assets when used accordingly by the firm, it will generate net income and make the firm
19
MEW MEW CAT FOOD PRODUCTION
profitable. favorable balance sheet and cash flow statement show that the firm will be able to
achieve its projected goals and also able to ensure that its financial performance is optimized.
The projected net incomes show that it will be profitable.
From the analysis on cost and benefit conducted, it’s evident that the firm will be profitable and
successful because after comparing the total costs vs the total benefits, the total benefits
outweigh the total costs incurred.
The business should use a well-planned budget, it should adopt the use of a comprehensive
business plan, the business should establish well-defined goals and have priorities on how to
achieve them, activities of the business should be well monitored, the business should use
internal control systems.
20
MEW MEW CAT FOOD PRODUCTION
References
Palepu, K. G., Healy, P. M., Wright, S., Bradbury, M., & Coulton, J. (2020). Business analysis
and valuation: Using financial statements. Cengage AU.
21
MEW MEW CAT FOOD PRODUCTION
Appendices
Appendix A
MEW MEW COMPANY
Budgeted Income Statement
For Years Ended December 31,
2021
MEW MEW COMPANY
Budgeted Income Statement
For Years Ended December 31,
2022
MEW MEW COMPANY
Budgeted Income Statement
For Years Ended December 31,
2023
Sales (
1,700units ×
＄90)
$
153,00
0
Sales (
2,200units ×
＄90)
$
198,00
0
Sales (
2,800units ×
＄90)
$
252,00
0
cost fo goods
sold
$
59,500
cost fo goods
sold
$
77,000
cost fo goods
sold
$
98,000
Gross profit
$
93,500
Gross profit
$
121,00
0
Gross profit
$
154,00
0
Operating
expenses
Operating
expenses
Operating
expenses
Sales
commissions
$
15,30
0
Sales
commissions
$
19,80
0
Sales
commissions
$
25,20
0
Sales
salaries
$
6,000
Sales
salaries
$
6,000
Sales
salaries
$
6,000
Administrativ
e salaries
$
7,000
Administrativ
e salaries
$
7,000
Administrativ
e salaries
$
7,000
Interest
expense
$
6,000
$
34,300
Interest
expense 替换
成运费
$
32,800
Interest
expense
$
38,200
Income
before
income taxes
$
59,200
Income
before
income taxes
$
88,200
Income
before
income taxes
$
115,80
0
22
MEW MEW CAT FOOD PRODUCTION
Income tax
expense
(＄59,200×20
％）
$
11,840
Income tax
expense
(＄88,200×20
％）
$
17,640
Income tax
expense
(＄115,800×2
0％）
$
23,160
Net income
$
47,360
Net income
$
70,560
Net income
$
92,640