Kiosk Financial Analysis: Breakeven and ROI for MKC CityWalk

Introduction

My Kiosk Corporation (MKC) is a well-known company in the Malaysian kiosk business. It was one of the first to operate and manage a chain of kiosks selling handphones and accessories in the nation's shopping malls. The company is currently planning to open another kiosk, this time in a new shopping mall in downtown Kuala Lumpur. CityWalk is a shopping center located near two of the city's major malls — KLCC Suria and Pavilion — against which it competes. It is important for MKC to have a presence in CityWalk, as the shopping center is expected to become another destination shopping area.

As finance manager, my role is to analyze the financial aspects of the new kiosk planned for CityWalk. The figures needed include key managerial accounting metrics such as the breakeven ratio, setup costs, cost-volume-profit (CVP) analysis, and return on investment (ROI). Each of these will be calculated on the basis of estimates drawn from other MKC kiosks in the area and the known costs of doing business in CityWalk. This report presents all of these budgets and calculations.

Estimated Revenues

The CityWalk mall is situated in a high-density area in the center of Kuala Lumpur. There are other major malls nearby that draw traffic, in addition to a number of high-rise condominium towers and major hotels. Several significant streets line the area, including the major nightlife street Jalan P. Ramlee and one of downtown KL's principal thoroughfares, Jalan Raja Chulan. There are several nearby public transit points, including the subway stop at KLCC and the monorail stops at Bukit Nanas and Raja Chulan stations. Bus stops on Jalan P. Ramlee sit directly in front of CityWalk. The area therefore has tremendous foot-traffic potential, particularly as an air-conditioned passage connecting Jalan P. Ramlee to the area around Pavilion mall.

As a result of its central location and high probability of foot traffic, CityWalk executives and MKC agree that kiosks on the main floor of CityWalk will likely see a tremendous volume of visitors. It is therefore estimated that average monthly revenue for this kiosk will be RM 50,000 (approximately USD 16,667 at a rate of 3 RM to 1 USD). This figure serves as the baseline for calculations and equates to RM 600,000 annually. For the purposes of developing alternate budgets reflecting above-expected or below-expected performance, monthly revenue figures of RM 41,667 (RM 500,000 annually) and RM 58,333 (RM 700,000 annually) will also be tested. Although there is some seasonality in Malaysian shopping patterns due to public holidays, it is assumed that no major month-to-month differences in sales will occur.

There are several categories of costs associated with setting up the kiosk: setup costs, variable costs, fixed costs, and overhead costs. The cost of setup is expected to be relatively low. MKC, being one of the most experienced kiosk operators in the country, has close ties to kiosk producers and enjoys significant buying discounts. Setup costs include the price of the kiosk unit itself. Because of the nature of the products sold, the kiosk is high-end and will be fitted with a substantial amount of electrical equipment. The total cost of the kiosk is estimated at approximately RM 20,000. The second component of startup costs is labor. Labor costs in Malaysia are low, and it takes only a few hours to assemble and install a kiosk from start to finish. Total labor costs will include electricians, but even with their fees included, the total should amount to no more than RM 5,000. Fixed costs associated with initial hiring will not be counted, as MKC's Human Resources department will handle recruitment with no additional staff hours required beyond existing obligations.

Estimated Costs

The primary variable cost is the cost of goods sold (COGS), which is estimated at 28% of total revenues for any given period. This percentage may vary depending on the product mix, but MKC has arrived at this estimate using data from its kiosks elsewhere in downtown Kuala Lumpur.

Fixed costs include rent, staff wages, and utilities. Rent is fixed by CityWalk at RM 21,000 per month. Kiosk staff are paid a flat rate of RM 16 per hour plus a 1.5% commission on sales. One staff member will be on duty at all times, working a 12-hour day, seven days a week, resulting in a fixed staff wage cost of RM 1,344 per month. A supervisor will also spend time at the kiosk — particularly during peak hours — at a cost of RM 3,000 per month. Utilities are expected to cost approximately RM 1,500 per month. Overhead is incorporated within the fixed costs calculation.