Christine helps to supply teas (sandwiches, cakes and drinks) for her husband's local cricket club. She...

  

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Christine helps to supply "teas" (sandwiches, cakes and drinks) for her husband's local cricket club. She realises that she could develop this as a business. She has drawn up financial information and other information about the possibilities as follows:- • The cricket club would pay £5.00 per head for a batch of 30 "teas" of an appropriate standard. A batch would be needed on both Saturdays and Sundays for the 20 weeks of the cricket season. • There are several other local cricket clubs who would welcome their "teas" being supplied on the same basis. • There are also several football teams who would welcome some after match refreshments. Their requirements are less expensive but they would be happy to pay £3.00 per head for a batch at 30 meals for the 30 weeks of the football season. • She could then supply a 'Saturday' football team and a 'Sunday' football team on separate contract, that is two football teams per weekend. • To develop the business Christine will need more extensive facilities. At her house an outbuilding could be fitted out as an extensive kitchen. She would also need a delivery van to collect food and drink from local suppliers and deliver meals to the cricket and football teams. • There is a ready supply of university students happy to undertake a few hours to be paid work at weekends. Estimates of the financial figures can be estimated using the following: • Each batch of 30 cricket club "teas" will require food and drinks costing £50.00, four hours of direct labour @ £8.00 per hour, direct electricity and other variable costs of £2.00 per batch. • Each batch of football teams' refreshments will require food and drinks costing £30.00, three hours of direct labour @ £8.00 per hour, direct electricity and other variable costs of £1.00 per batch. • The capital costs are estimated at:- Renovating the out-building £8,000, Kitchen equipment supplied and installed £10,000, Delivery van £7,000. • In addition to the direct variable expenses quoted above the business will require the following annual costs - insurances and local services £2,000, local authority taxation £2,000 and van running expenses (which can be regarded as 'fixed') £3,000. • For financial accounting purposes the capital expenditure can be depreciated on a straight-line basis over 10 years. Required: a) i) Calculate the contribution earned on one batch of cricket club "teas" and one batch of football refreshments. (4 marks) ii) Show the total annual contribution to be earned from a cohort of one cricket club for two days and two football teams for one day each. (3 marks) iii) Calculate the approximate number of such cohorts that are required to enable Christine to break even per annum. (3 marks) b) Christine is, fairly confident that once she is established she can handle 3 cohorts (that is 3 cricket clubs, 3 Saturday football teams and 3 Sunday football teams). On this assumption calculate:- i) The Payback Period in years (3 marks) ii) The Accounting Rate of Return (assuming a 10 year life) (3 marks) iii) The Net Present Value assuming a discount rate of 10% per annum. You may assume that the capital expenditure occurs in year 0(start of year 1), and that there are 10 years of operation. The cumulative factor for a constant cash flow discounted at 10% per annum for 10 years is 6.144. (4 marks) Christine helps to supply "teas" (sandwiches, cakes and drinks) for her husband's local cricket club. She realises that she could develop this as a business. She has drawn up financial information and other information about the possibilities as follows:- • The cricket club would pay £5.00 per head for a batch of 30 "teas" of an appropriate standard. A batch would be needed on both Saturdays and Sundays for the 20 weeks of the cricket season. • There are several other local cricket clubs who would welcome their "teas" being supplied on the same basis. • There are also several football teams who would welcome some after match refreshments. Their requirements are less expensive but they would be happy to pay £3.00 per head for a batch at 30 meals for the 30 weeks of the football season. • She could then supply a 'Saturday' football team and a 'Sunday' football team on separate contract, that is two football teams per weekend. • To develop the business Christine will need more extensive facilities. At her house an outbuilding could be fitted out as an extensive kitchen. She would also need a delivery van to collect food and drink from local suppliers and deliver meals to the cricket and football teams. • There is a ready supply of university students happy to undertake a few hours to be paid work at weekends. Estimates of the financial figures can be estimated using the following: • Each batch of 30 cricket club "teas" will require food and drinks costing £50.00, four hours of direct labour @ £8.00 per hour, direct electricity and other variable costs of £2.00 per batch. • Each batch of football teams' refreshments will require food and drinks costing £30.00, three hours of direct labour @ £8.00 per hour, direct electricity and other variable costs of £1.00 per batch. • The capital costs are estimated at:- Renovating the out-building £8,000, Kitchen equipment supplied and installed £10,000, Delivery van £7,000. • In addition to the direct variable expenses quoted above the business will require the following annual costs - insurances and local services £2,000, local authority taxation £2,000 and van running expenses (which can be regarded as 'fixed') £3,000. • For financial accounting purposes the capital expenditure can be depreciated on a straight-line basis over 10 years. Required: a) i) Calculate the contribution earned on one batch of cricket club "teas" and one batch of football refreshments. (4 marks) ii) Show the total annual contribution to be earned from a cohort of one cricket club for two days and two football teams for one day each. (3 marks) iii) Calculate the approximate number of such cohorts that are required to enable Christine to break even per annum. (3 marks) b) Christine is, fairly confident that once she is established she can handle 3 cohorts (that is 3 cricket clubs, 3 Saturday football teams and 3 Sunday football teams). On this assumption calculate:- i) The Payback Period in years (3 marks) ii) The Accounting Rate of Return (assuming a 10 year life) (3 marks) iii) The Net Present Value assuming a discount rate of 10% per annum. You may assume that the capital expenditure occurs in year 0(start of year 1), and that there are 10 years of operation. The cumulative factor for a constant cash flow discounted at 10% per annum for 10 years is 6.144. (4 marks)

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a a i Calculate the contribution earned on one batch of cricket club teas and one batch of football refreshments 4 marks Cricket club teas Revenue 5 x ... View the full answer