Wine Mail Order Distribution in South East England
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Index
1.0 Brief
1.1 Objective
2.0 Assumptions and rationale
2.1 Methodology
2.2 Cost determination
2.3 The Spreadsheet
3.0 Wine Box operational overview
3.1 Demand Model
3.2 Scenarios
4.0 Key Observations
4.1 Recommendations
4.2 Executive Summary
Tables
1. Variable costs (default model)
2. Fixed costs (default model)
Inserts
1. Budget (default model)
2. Break even sheet (default model)
3. The sensitivity sheet (default model)
4. Budget scenario 1
Appendix:
A Demand model
A 1.0. UK mail order wine business
A 1.1 Industry competition.
A 1.2 Industry trends
A 1.3 Market calculations
A 1.4 Assumptions
B Spread sheet
B1. Case: Wine Box Ltd
B2. Summary Cash Budget
B3. Break-even point & Target Profit
B4. Sensitivity Analysis
B5. Selected Scenarios
B6. Cost definitions
B7. Machinery
B8. AC520 Wine Box Project / delivery
B9. Wines
B10. Customs
B11. Shipping
B12. Warehousing
B13. Advertising
B14. Overheads
1.0 Brief
The purpose of this report is to analyse the costs and revenues involved with running a mail order home delivery wine business in the South-East England. The report and financial analysis have been structured in such a manner as to allow managers of such business what we perceive to be optimum practical use. The giving of insight into the analysis and calculations used explains the underlying justifications and assumptions in rationale used. Assessing the outcomes of sensitivity and scenario analysis and make a conclusion and give recommendations on the key issues of the business.
1.1 Objective
The objective of the report is for to allow managers to assess the nature, current and likely future prospects of the business they are in.
2.0 Assumptions and rationale
Recognition of that there was a need for a clear set of boundaries that would restrict the amount of input information, and establishment of, was one of the initial steps of this project. Eliminating in the pursuit of information what would have potentially been a vast sea of information that actually has little or no significance (in our opinion – based on cost findings indicators of preliminary research) to the project – selecting and focusing pivotal key cost elements exclusively, enabling most productive usage of finite amount of time available for completion.
The main objective in data collation was nevertheless that it should be as realistic and accurate as possible. The cost elements were estimated using several methods including regression and mathematical averages.
Basic assumptions on Cost-Volume-Profit analysis were employed, including:
1. Division of costs to fixed and variable components
2. Revenue and cost behaviour is linear
3. We are assuming a single product
4. The effect of time value of money is not taken into account.
5. The only cost and revenue driver is the number of units of output.
(Horngren, Bhimani, Datar & Foster, 2002)
In addition, it is evident that qualitative factors are excluded from this study and their absence leaves many questions to be tackled by the decision-maker.
2.1 Methodology
Real suppliers were contacted (e-mail and telephone) and price quotations were gathered in order to achieve the objective of creating as accurate and realistic a scenario model as possible. Additional information constituting regional analysis – relating to operational market specific, psycho-graphic and socio-demographic analysis, industry trends etc was primarily sourced from internet (journals, online publications, governmental and local governmental etc); this information was used in the calculation of the operational scenario demand model for operational scenario to make as realistic as possible.
2.2 Cost determination
Full details and calculations on the different cost elements can be seen on the “Cost Definitions” sheet of the spreadsheet analysis attached.
Variable Costs1
Wine (unit)
Ј8.04
Carton
Ј0.48
Shipping
Ј6.00
Delivery
Ј9.51