What is the break-even analysis for your venture? How did you determine this? At one point will you reach your desired profitability level? Explain how you might reach profitability sooner, such as the factors impacting your profitability.
Please respond to this:Greetings Class,
I hope that everyone is having a great week so far! This week we are discussing the break-even analysis for the venture idea we have. This is a tool that is used to determine at what point your venture is profitable. The biggest debt that I will have starting out is my website designing. Funneling product through the website will allow me to have a small commission for each sale, but realistically this commission will most likely only be 3-5% of each transaction. This will not be the way I make most of my profits starting out. The biggest way for me to generate more income with the curriculum is to buy the curriculum that are most sought after by the consumer and purchase them at a wholesale cost from the merchant and sell them directly ourselves. The commission will be much higher doing some of the products this way, and by only personally housing the curriculum that are always sought after I can ensure I don’t have inventory being wasted and just sitting there. Starting out, I am not expecting to generate much income since most people will have never heard of Homeschool Hub except our community here in Columbus, GA. Getting the word out will take a year or two, at the soonest.
Ideally our goal is to begin generating more income our second year after studying the analytics of which curriculum were sought after the most and then purchasing those curriculum at a wholesale cost right before peak season begins, ensuring any credit card or loan for the merchandise is paid off immediately. Judging your inventory on the analytics from the previous year will be an easy way to ensure you don’t have stale inventory.
By the fifth year of our business our goal would be to be generating a profitable business and be mostly debt free at that time, except for any credit owed for that coming year’s school year.
One of the best ways for us to get the word out will be to keep in close contact with the leaders of the current communities and advertise our domain through them and try and advertise at any conventions each year to promote sales growth. Getting the word and constantly studying the analytics to determine which curriculum can be capitalized on by housing in house. Handing out flyers and trying to speak with the parents would be beneficial. Another way to help get the word out would be to try and hold community events specifically for the homeschool community and use that as a tool to gather people together and pass out flyers or business cards.
Thank you for taking the time to read my post for this week!
Please respond to this:A break-even analysis is a calculation of the point at which revenues equal expenses. In securities trading, the break-even point is the point at which gains equal losses. Break-even analysis help business owners determine when they’ll begin to turn a profit and helps them price their products with that in mind. It provides a dynamic overview of the relationships among revenues, costs and profits.
According to our reading the breakeven point can be measured multiple different ways, but the basic equation of the breakeven point is:
Breakeven point = fixed cost / (unit selling price – variable cost) or BE = FC/P-VC
For my business:
Fixed Cost 35,200: Variable Cost 100: Unit Selling Price 175:
Utilities – 24,000 Promotion – 100 Cabin Rental per night – 175
Travel – 100 Maintenance – 100
Supplies – 100
Insurance – 6,000
469 Units = 35,200 / (175 – 100)
In the case of McCarthy Cabins where the fixed cost is $35,000, per unit sales price is $175 and the variable cost is $100 the breakeven point will be 469 Units. If McCarthy Cabins intends to have at the minimum of 5 cabins operating for rental, it is equivalent to 94 nights rented per year to breakeven.
469 Units / 5 Cabins = 94 Nights
McCarthy Cabins is a summer rental cabin business and as of this moment does not intend to operate during the winter months due to climate and low tourism. McCarthy Cabins plans to operate during the months of May – September, an average of 150 days per year.
A way McCarthy Cabins could reach profitability sooner would be the generic, raising prices per selling unit. This is simply due to the price per unit of $175 being on the low end. During months of August and September, the average local rate for cabin rental raises to $200+. This is due to the high demand in lodging for visitors and tourist in the area for Halibut and Salmon fishing.
This has been a new adventure for me in calculating my breakeven analysis, I simply hope my numbers are not too far off. Hope to her everyone’s thoughts!
-FORUM: Explain how forecasting and demand management can help eliminate excess inventory?
2. What are some benefits of Cycle Counting Muller discusses in Chapter 6? Pick one method of cycle counting, explain its process and pros and cons. What type of business will find your selected method of cycle counting beneficial? Why – explain.
PLEASE RESPOND TO THIS:Forecasting and demand management are techniques that utilize data to help eliminate excess inventory. Forecasting is a process/technique where predictions are made based off past and current data and analysis of trends in order to determine the direction of the future trends (Tuovila, 2019). Forecasting is essential and consists of two approaches – strategic forecasts and tactical forecasts. While tactical forecasts focus on short term forecasts for making day-to-day decisions, strategic forecasts deal with overall strategy, manufacturing, sourcing, and even location design (RTMG201, Lesson 6). Demand management, also referred to as consumption management, is a method of controlling and tracking unit requirements and internal purchasing operation (Techopedia, 2013). Both tools effectively optimize inventory through effectively keeping track of inventory through data and as accuracy improves, inventories are reduced. Demand management specifically is able to watch or screen the growth and decline of the quantity of transactions between suppliers which prevents a buildup of excess inventory because the demand management monitors the data allow organizations to adapt accordingly. Forecasting specifically analyzes the data to ensure when organizations are ordering more inventory, they are prepared for trends such as holidays sales and regular average daily sales. Metrics in both techniques help businesses make effective decision surrounding how much inventory cushion is needed and prevent from creating excess inventory.
Cycle Counting is a systematic method to solve inventory problems through counting a statistically significant cross-section of inventory frequently (Muller, 2011, pg. 185). Benefits include noting discrepancies as soon as they pop up which leads to quicker backtracking and solutions and then evolves the systems to operate more and more effectively and efficiently (Muller, 2011, pg. 185). Of the total six methodologies, the location audit cycle counting method is an approach to logically split up inventory through their location. For example, the stockroom is divided up based on bins, racks, or even shelves. Unlike the A-B-C classification method, every item under the location audit cycle counting method are treated equally (Muller, 2011, pg. 191). Two of the biggest benefits from this method is it serves as a double audit because of the simultaneous checking of quantity and location and it does not require detailed recordkeeping. The only downside to this method is that the length of the cycle depends on how many areas need to be counted. A “job parts” store would benefit from this method because they often have a warehouse with multiple bins in various locations that contain multiple different SKU’s and each part is not treated equally. I personally utilize this method without even knowing it in my supply warehouse because we have a large amount of items on different shelves so we tackle inventory section by section.
PLEASE RESPOND TO THIS:
Forecasting and demand management can help eliminate excess inventory. “Forecasts are the basis of accounting and finance for budgetary planning and cost control”(lesson 6). With that being said companies can forecast capacity, facility layout, process selection, inventory, scheduling, purchasing, etc. No forecast will ever be perfect, because you can predict the future, but paying close attention and reviewing previous information can help companies to get a pretty good idea. This will help a lot with keeping inventory just where it needs to be, give or take a some!
Cycle counting is when you physically count your inventory in your store throughout the year. One of the main differences between cycle counting and a physical inventory is, cycle counting is done based on your different classifications. There are your “A” items which are the most active items, that are usually counted once a month (twelve times a year), your “B” items which are the items that are least priority and counted once a quarter (four times a year), and last is your “C” items which are the least active items that are usually counted once a year. Cycle counting also differs from a normal physical inventory due to the way you count. With cycle counting you are to have selected random items from different classification, opposed to having one person assigned to a particular section and scanning every single item. This should make it where a company doesn’t have to schedule any extra help just to get their cycle counting in like they would for a physical yearly inventory.
I think this type of inventory would be beneficial in any retail store. Especially, a store that has a ton of inventory and smaller items. Being able to take inventory without scanning the entire store would be really helpful and make keeping inventory a lot easier.