Bobble In Style
Scenario: Your team has been hired to provide financial analysis for a start-up company, Bobble in Style,
which produces customized bobble heads. The bobble heads are made out of less rigid materials and are
more true to life than those of competitors. The company inventors, Mr. and Mrs. Lee, are going to pitch
their idea to Shark Tank in a few months, but first they need to have a better understanding of the
business financials. The Lee’s are already creating and selling their product from their home-based office
and work area. They know what costs are involved with making the bobble heads on a small scale, but
they don’t have an understanding of financial figures beyond basic costs. They need you to make sense
of various financial figures for them.
The Project: There are several financial analysis tasks involved with this project, which are outlined
below (#1-8). Once you have worked through each task, you will need to produce a PowerPoint
presentation to introduce and highlight your findings. Your PowerPoint presentation should include a
title slide, an executive summary slide(s), subsequent slides that illustrate your findings, any additional
recommendations that you would like to make, and a conclusion slide. The PowerPoint presentation
should be approximately 15-25 slides in length. Include notes in the presentation as needed. You will
also need to create a written executive summary (one page in length). Your final submission will include
the PowerPoint presentation, the executive summary, and an Excel file with relevant calculations. The
specific financial analysis tasks and related information are listed below (#1-8). 1. Financial Statements: Develop an Income Statement for 20XX, Cash Flow Statement for 20XX,
and Balance Sheet as of the end of 20XX based on the data provided below for year 20XX. All
sales are collected when the sale is made and all expenses are paid when the expense is
incurred. Explain the purpose of each financial statement.
a. Income Statement Data for 20XX: Units produced and sold = 420 Sales ($80 per unit selling price) = $33600 Cost of goods sold ($30 per unit, all variable costs) = $12600 Labor = $0 (Mr. and Mr. Lee were the only ones working and did not pay
themselves) Advertising fees =$2000 Bank fees = $150 Phone/internet = $1200 Shipping ($3 per unit) = $1260 Utilities = $900 Office supplies = $800 Interest expense on note payable = $350 Depreciation expense (straight line) = $800 Income tax rate = 26 %
b. Other Financial Data for 20XX: Proceeds from sale of equipment = $3000. The equipment originally cost $1000
and had accumulated depreciation of $200. Purchase of equipment = $1600 (The machine is purchased on the last day of
20XX so no depreciation expense is recorded.) Repayment of note payable = $5000 Consider any data relevant from the income statement.
c. Balance Sheet Data for Beginning of 20XX: Cash and cash equivalents = $10000 Accounts receivable = $0 (Cash is received at time of sale) Raw materials inventory = $10500 Equipment = $5000 (This includes the $1000 cost of the equipment sold in
20XX). Accumulated depreciation = $1,000 (This includes the accumulated depreciation
of 200 for the equipment sold in 20XX. Accounts payable = $0 (Cash is paid at the time of purchase.) Note payable = $5000 (This is the note payable which is repaid in 20XX) Common stock = $15000 Retained earnings = $4500
2. Financial Ratios: Calculate the following financial ratios and explain the meaning of the results.
a. Net Profit Margin
b. Quick Ratio
c. Debt-to-Equity Ratio
3. Cost Classification: The Lee’s have provided you with the following costs and relevant
information that are assumed for year 20XY.
A. Classify each of the costs (a. through j.) below under C. as a variable cost or a fixed cost.
B. Explain the importance of distinguishing between variable and fixed costs.
C. Prepare a budgeted income statement, assuming 600 units to be produced and sold, a per
unit selling price of $85, an income tax rate of 28% and the following information.
a. Cost of goods sold of $35 per unit
b. Labor = $400/month One part-time employee will be hired to take care of packaging and shipping.
This employee will be paid $10 per hour. He or she is estimated to work 40 hours
total per month.
c. Advertising fees = $3,000
d. Bank fees = $200
e. Phone/internet = $150 per month
f. Shipping = $3 per unit
g. Utilities = $100 per month
h. Office Supplies = $900
i. Conference Exhibitor Fee = $3000
j. Travel Expenses for Conference (e.g. airfare, meals, taxi) = $1200
4. Net Present Value: The Lees are considering adding a new piece of equipment that will speed up
the process of building the bobble heads. The cost of the piece of equipment is $42000. It is
expected that the new piece of equipment will lead to cash flows of $17000, $29000, and 5. 6. 7. 8. $40000 over the next 3 years. If the appropriate discount rate is 12%, what is the NPV of this
investment? Explain the findings.
Budget Preparation: The Lees believe that production and sales could double after being on
Shark Tank which is scheduled in December of 20XY. They want to be prepared for this. Based on
the budgeted income statement calculated above for 20XY, create a new budgeted income for
20XZ assuming that the production and sales is double the level of 20XY.
Incremental Analysis: If production does increase dramatically after their presentation on Shark
Tank, the Lees will need more space for production. They have two options. Option 1 is to rent
out a spacious warehouse nearby. If they pursue this option, there rent will be $1200 per month
and utilities are estimated to cost an additional $350 per month. Their second option, Option 2,
is to rent a smaller storefront space that is also nearby. The storefront rent is $1350 per month.
However, utilities will likely only cost an additional $150 per month. They want to compare their
options over one year’s time (since each rental contract is a 1 year commitment). What is the
incremental analysis if the Lees choose Option 1 over Option 2?
Break-Even Analysis: You have been asked to calculate how many units need to be sold to break
even, based on the costs provided in task #3. Assume that only one conference will be attended
and the estimated expenses associated with this conference are on target. Use the information
in task #3 except do not consider taxes.)
Contribution Margin: Based on the Break-Even Analysis just performed, what is the contribution
margin per unit and the total contribution margin?