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Analyzing Bookkeeping Express
Summary
Bookkeeping Express is a national company that focuses on providing professional
bookkeeping services to small and midsize businesses utilizing the franchise model. Their goal
is to take care of the bookkeeping needs and provide real time access to the business information
when it is needed. Entrepreneur magazine named Bookkeeping Express one of the fastestgrowing franchises in its 2012 Franchise 500 list.
The bookkeeping office that I intend to open will focus on outsourced accounting
services to the small businesses that need part time bookkeepers. The bookkeeping franchise will
strengthen the small businesses by providing cost effective bookkeeping services, quality
assurance, tax preparation, easy integration, customization, reconciliation and consolidated
reporting. Its main aim is to provide analysis and provide timely, relevant, accurate and secure
financial data to businesses to that will be helpful in maximizing the performance of the
businesses. The business will not only maintain books and generate financial reports, but will
also help franchisees to better understand how to read and interpret financial information.
The franchise will require research and analysis on the costs that will be incurred in
starting this franchise. We must first look at the cost-volume-profit analysis model for the
bookkeeping office franchise.
Cost-Volume-Profit model analysis for Bookkeeping Franchise
The cost-volume-profit analysis model analyzes how changes in sales volume, costs and
prices affect a company’s profit. It is based on determining the breakeven point of cost and
volume of goods. In order to be relevant, the cost-volume profit analysis makes several
assumptions, such as sales price, fixed costs and variable cost per unit are constant. Using the
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model allows us to estimate future costs, revenues and profits, which helps us monitor and plan
operations. The analysis starts with the basic profit equation:
Profit = Total revenue – Total costs
Total Costs includes both fixed and variable cost, therefore, we can say that:
Profit = Total revenue – Total variable costs – Total fixed costs
We must next consider the contribution margin:
Contribution Margin = Total revenue – Total variable costs
Contribution Margin per unit = selling price per unit – variable cost per unit
Selling price and Variable cost per unit are constant.
Profit = (selling price * quantity)-(variable cost * quantity) – fixed cost
We then rewrite the profit equation in terms of the contribution margin per unit.
P = Selling price per unit
V = Variable cost per unit
F = Fixed cost
Q = Quantity of product sold
Profit = (Selling Price X Quantity) – (Variable Cost X Quantity) – Fixed Cost
Profit = (P –V)Q - F
Contribution Margin = Selling Price - Variable Cost
Cost-Volume-Profit Analysis in Units
Sales
Net Profit
Cost
Variable Cost (Total SG&A)
Fixed Cost
Variable Cost
Sales
Profits
100%
57.64% (BizMiner, 2009)
42.36%
17.91% (BizMiner, 2009)
$50,000 (Success in bookkeeping, 2012)
$30,000 (BookKeeping Express)
30,000 / 17.91% = 167,504
57.64% X 167,504 = 96,549
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Contribution Margin =$137,504
($167,504 - $30,000)
Profit = (P –V) Q-F
$96,549 = 137,504 Q- 50,000
96,549 + 50,000 = 137,504 Q
Q = 146,549/137,504
Q = 1.06577 units
The quantity of sales needed for the target profit to be reached is 1.07 units
Cost-Volume-Profit Analysis in Revenues
Cost-Volume-Profit analysis in revenues:
Contribution margin ratio = contribution margin per unit / selling price per unit
Contribution margin ratio = (137,504/1.07)/ (167,504/1.07)
Contribution margin ratio = 128,508 / 156,545
Contribution margin ratio = .8208
Contribution margin ratio of .8208 implies that 82.08% of the revenue from each unit sold
contributes first to fixed costs then to the profits after fixed costs are covered.
Breakeven point for Bookkeeping Service
Breakeven point is the point where revenues cover all of the fixed and variable costs resulting in
no profits.
Sales per unit = 156,546 and fixed cost =50,000 and variable cost per unit 28,037
Break even quantity = (50,000 +0)/(156,546 - 28,037) = 50,000 /128,509 =.389 or .4units
Cost Function Estimates
Account Classification method, also known as account analysis, is a cost estimation
method that examines accounts in the general ledger, allowing the accountant to use the
information with their judgment to determine how cost will react in the future.
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Y = a + bX
Y = production cost
X = number of units
a = fixed costs
b= variable cost per unit
Since a= 50,000 and
b= 28,037
Y = 50,000 + 28,037X
The High-Low method is an accounting technique that uses the highest and lowest total cost as a
basis for estimating the fixed and variable elements of a mixed cost.
y = a + bx
Y = total cost
a = fixed cost
b = variable cost per unit
x = level of activity (which would be the high or low point)
Since there are no high or low activity points, I have estimated totals and used the Quantity of
1.07 and the breakeven units of .4 units.
Variable cost per unit = 80,000 – 61,214.80 / (1.07 -.4)
Variable cost = 28,037.61
80,000 = 28,037.61 * 1.07 + b
50,000.41 = b
Y = 28,037.61X + 50,000.41
The Regression analysis is a procedure used for estimating the relationship between the
dependent variable and one or more independent variables. In estimating the cost volume
formula, regression analysis tries to find a line of best fit.
X
Y
1.07
.4
80,000
61,214.80
80000 = 28,037.61*1.07 + b so Y intercept = 49,999.75
Beta = 28,037.61
Therefore, Y = 49,999.75 + 28,037.61X
The cost estimates that I used are only partially valid due to the fact that the data that I used only
covers a single period. The estimates would have been more accurate if there was more data
available to use from multiple periods. I feel the cost estimation method that would be the most
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beneficial would be the high low method as it reviews data from multiple points and can provide
a statistical linear relation between the dependent and independent variables.
Clients will be charged a fee of $40 per hour.
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References
Cost Volume Profit analysis. (2004). Chapter 3: cost volume Profit analysis. Retrieved from
http//www.wiley.com/college/sc/eldenburg/ch03.pdf
Cost-Volume Profit Analysis Definition/Investopedia. (N.d.). Retrieved from
http://www.investopedia.com/terms/c/cost-volume-profit-analysis.asp
BizMiner. (2010). Free Business Statistics and financial Ratios. Retrieved from
http://www.bizstats.com/sole-proprietorship-business-financials/professional-scientifictechnical-services-12.0000/certified-public-accountants-12.0200/show
Success in bookkeeping (2011). Bookkeeping Franchise. Retrieved from http://www.success-inbookkeeping.com/bookkeeping-franchise.html
BookKeeping Express: What the small Business owner needs... (n.d.). Retrieved from
http://www.franchiseknowhow.com/operations/bookkeepingexpress.htm
BookKeeping Express | Linkedln. (n.d.). Retrieved from http://www.linkedin.com /company
/bookkeeping-express
Business Owner | BookKeeping Express. (n.d.). Retrieved from http://bookkeepingexpress.com
services/business-owner/