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Case Study: Evaluating the Viability of a Geode Retailing Business

Background Information

1. You are required to complete the assessment outlined below and submit your completed final document through the RKC Online Campus by the end of Unit 6. Your grade will be based  on this final document, to which you will also receive written feedback.

2. In addition you must upload part of your draft of the above document by the end of Unit 3 (see Interim Assignment at the end of this document for more details). This draft will not be graded, but it is an important way of monitoring your progress, and you will receive feedback with respect to the topic covered in the interim assignment.

3. Please ask any questions about the interim assignment and final assessment in the Forum.

4. Note that this is a fictional case focused on assessing your understanding of management accounting; you are not expected to comment in any way on aspects such as the market feasibility or actual rates of tax in the UK. Final Assessment You have been asked by your year old aunt Hattie to help her assess a new venture. It is Friday night, and she needs the work finished by Sunday, in preparation for an early Monday morning meeting, so you know that she will not be able to give you any more information than she already has (and you will be unable to contact her over the weekend), and therefore you may need to rely on your own assumptions and estimates for some of the analysis where appropriate.

Hattie lives near Manchester, England, and recently took early retirement (from a university she joined years ago), leaving them with a lump sum (after tax) payment of. Surprisingly, rather than being depressed by her new state of independence, she is tired of the bureaucratic life and excitedly contemplating a new career as a retailer of geodes1 and other decorative stones. She is confident that she can set up a business to import geodes from Uruguay and sell them in Europe. Her husband, who she met in the USA at business school, is pleased with her passion for this possible new venture, but concerned that it might turn into a financial disaster. He has suggested that she develop a financial plan to evaluate the venture and its viability.

A geode is a spherical rock with a hollow cavity lined with crystals After a couple of hours with Hattie you have assembled the following information from her: - Colada Geodes, an established supplier of geodes and similar stones based in Artigas (and owned by one of Hattie’s university colleagues), is prepared to give her exclusive rights to sell their products in the UK for a six year period in exchange for an upfront payment for those rights.

The geodes sell in Uruguay for an average of Uruguayan Peso (or for short) per kg, and Colada Geodes is prepared to sell them to Hattie at a  discount to this price; - Colada Geodes would ship to Hattie on receipt of payment for each order; Hattie has found out that freight from Artigas to Manchester, via Montevideo by truck and air freight, would cost on average per kg and that the time from her placing an order to receiving the goods in Manchester would be four weeks (including the preparation and packing time in Uruguay); - Hattie plans to order from Colada Geodes monthly and intends to maintain a minimum stock of one month’s worth of sales to ensure that she will be able to supply a suitable range of products to customers; She will buy a special jig and tools at a cost of  to break open and polish the geodes, and has found a small industrial room she can rent nearby at a cost of  per month (payable monthly in advance, plus an initial security deposit of three months rent, refundable at the end of her tenancy if there is no damage).

Hattie will sell the geodes throughout the UK by internet only, and is planning to spend with a website designer to develop the site; - She has already spent  on a market study that told her that once established, demand would be about kg a month, although in the first year sales would start at only kg in the first month before building up slowly to the full level at the end of the first year.

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