Online PPE Business Costing and Investment Proposal

Question 1: (50 marks)

The coronavirus pandemic has brought online shopping to the fore. The combination of consumers convenience and the continued need for groceries, clothing, and essential goods, has made online shopping services indispensable.

You have decided to adopt a proactive approach regarding online purchases and have started a new business selling personal protective equipment (PPE) online with a 2-day delivery window. Your suppliers are a combination of both local and foreign manufacturers. Your business is VAT registered. Assume that custom taxes are at 10%. Use an exchange rate of R17 to the US $.

Details of the business purchases and expenses are:

Local purchases at cost for one month:

Foreign purchases at cost for one month:

Overhead costs to be considered:

Explain how you would calculate the costs for your products, the mark-up and selling price thereof, and to account for VAT and any other relevant taxes based on the financial information provided above. In your explanations, you would need to reflect the calculations and discuss any assumptions made in your assessment.

The outcome of the above calculation needs to ensure that the business performance is viable and sustainable and not just contributing to covering the overheads of the organisation over the long term.

Question 2: (50 marks)

The business that you started in question 1 above has taken off, and the demand for some of your products is growing beyond your ability to source them. You are therefore investigating the possibility of starting to manufacture some of the products under license from the original manufacturers. You do not have more capital to put into the business so you will be approaching potential investors for funding of the expansion.

1. Prepare a business proposal which you will be presenting to the potential investors to attract funding from them. The proposal must include a budget. A monthly budget for 12 months plus a further 2 years. (40)

• Include a discussion on how you would assess the break-even point for the business. (10)

Clearly indicate the assumptions that you are using and how and why you arrived at these particular assumptions.

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Product costing, markup and tax calculation

Local purchases : The local purchases are calculated by multiplying the number of units with cost per unit for safety boots, hard hats, cotton overalls and disposable ear plugs and the total causes coming to be R10150.
Foreign purchases: The foreign purchases for safety boots, face masks and Flame resistance overalls is coming to be R31323 including 10% customs.
The total overhead is calculated at R70000 per month.
The total monthly cost is therefore: Local + foreign + overheads = R111473
Vat and markup is 15%: The total selling price is R179471
On the basis of calculation, it is evaluated that the percentage markup approach and VAT adjustment leads to viability in pricing, and covers both operational and text obligations. The financial sustainability depends on exchange rates, and consistent sales volume.

Business proposal and break even analysis

Business expansion is essential in order to meet up the rising PPE demand into local manufacturing and the main purpose is to reduce dependency on imports and improve margins.
The budget overview for raw materials, labour, rental utilities, marketing and maintenance is calculated for a 3 years basis and the expected revenue for the first year is coming to be R2160000 less the cost of R1212000 would lead to a projected net profit of R948000.
The break even analysis indicates that 350 units per month is needed to break out. 

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