1. Issues- accounting, business, ethical issues After referring to the given case study, the below issues can be identified. Moreover, it has been described under accounting, business and ethics. Accounting The first issue that was identified was expense allocation. The practice of assigning 80% of expenses to product and design costs and 20% to the head office may not fully reflect the breakdown of costs. This may have an effect on how profitable and cost-structured the business is seen. Secondly, it is the Cost Management and Financial Planning Challenges. The organization faces difficulties in managing costs as it is unsure of which expenses are fixed or variable. Exact budgeting and decision-making depend on the unambiguous identification of these costs. The third issue that was identified was the direct vs indirect costs. For cost analysis and pricing strategies, it is essential to determine the direct costs of materials, direct labor expenses, and production overhead. Comprehending the breakdown of these expenses is crucial for proficient financial administration. Business The first issue identified under the business category is Material Sourcing and Outsourcing: There are concerns regarding Maxwell's belief in sustainability and ethical practices given its proposal to utilize less expensive materials from Vietnam and Sri Lanka and to outsource labor to Indonesia and Venezuela. The choice could have an effect on consumer loyalty and the brand's reputation. The second issue identified is the Production Location and Quality Control: Production outsourcing to foreign nations presents difficulties for upholding ethical and environmental norms and preserving a consistent level of product quality. Lastly, Budgeting and Sales Forecasting: It is difficult to develop a precise budget and evaluate the company's financial health when there is uncertainty surrounding both variable and fixed spending. Ethical issues The first issue that identified was Sustainability Claims: Maxwell's suggestion to use cheaper materials without informing Enzo raises ethical concerns about the company's commitment to sustainability. Transparent communication with stakeholders is essential for maintaining trust. Secondly, Outsourcing and Fair Labor Practices: The decision to outsource to countries with potentially lower labor standards raises ethical questions regarding fair wages and working conditions. Ensuring ethical practices in the supply chain is crucial for maintaining a positive brand image. Customer Trust is another issue that can occur. If customers discover discrepancies between the company's sustainability claims and its actual practices, it may erode trust and loyalty. Upholding ethical standards is vital for long-term brand sustainability. Calculate ROI for the First Year ROI Formula: ROI=(Net Profit from Additional RevenueRecurring Costs/Initial Costs+Recurring Costs)100% Net Profit from Additional Revenue: $164,115$76,600=$87,515 Total Costs: $7,000+$76,600=$83,600 ROI for the First Year: ROI=($87,515/$83,600)100% Explanation: The Return on Investment (ROI) and payback period are crucial financial metrics for assessing the profitability and risk of the investment. ROI: This measures the efficiency of the investment. It is calculated by dividing the net profit (additional revenue minus additional costs) by the total costs (initial investment plus additional annual operating costs). Payback Period: This is the time it takes to recover the initial investment from the net profits. A shorter payback period is generally more favorable as it indicates a quicker return on investment. Determine Payback Period Payback Period Formula: Payback Period=Annual Net Profit Increase/Initial Costs Annual Net Profit Increase: As calculated above, $87,515 Payback Period: Payback Period=$7,000/$87,515 Interpretation of Results The ROI and payback period provide two critical pieces of financial information: ROI: This percentage will tell us how much profit the investment is expected to generate in relation to its cost. A higher ROI indicates a more profitable investment. Payback Period: This is the time it takes to recover the initial investment from the net profits generated by that investment. A shorter payback period is typically preferred as it indicates a quicker return on the invested capital. Explanation: The payback period calculation result is 0.07998628806, which means that the EcoChic handbag business is expected to recover its initial investment in approximately 8% of a year, or around 29 days. The ROI calculation result is 1.04683014354, which translates to a return that is approximately 104.68% of the initial investment. Here's how to interpret this: Profitability: An ROI greater than 1 suggests a positive return, indicating that your business is generating profits beyond the initial investment. Percentage Gain: The ROI of 104.68% means that, for every unit of currency invested, you are gaining an additional 104.68%. In simpler terms, your business is earning more than you initially invested. Investment Efficiency: A higher ROI generally indicates a more efficient use of capital. However, the interpretation can vary by industry and the benchmarks set for acceptable returns. Comparison: To fully assess the significance of your ROI, it's helpful to compare it with industry averages, your business's historical performance, or the expected return rates in your sector. In summary, an ROI of 1.04683014354 is generally positive, indicating that your business is generating returns on the investment. However, it's crucial to consider the context of your industry and business objectives for a comprehensive analysis. In addition to the financial analysis, several qualitative factors need to be considered: Brand Image and Customer Experience: How will physical stores enhance the brand and customer experience? Market Trends and Customer Behavior: Are customers of EcoChic Handbags likely to prefer shopping in physical stores? Operational Challenges: Can the company handle the logistical and operational complexities of running physical stores? Long-Term Strategic Fit: How does the move to physical retail align with the long-term goals and sustainability ethos of EcoChic Handbags? Conclusion: Based on the quantitative analyses alone, opening a physical store would be feasible for the company; however, the final decision on whether to open physical stores should be based on a combination of these quantitative and qualitative analyses. While the financial metrics (ROI and payback period) provide a clear picture of the potential profitability and financial risks, the qualitative analysis ensures alignment with the company's brand, market position, and long-term strategy. Based on the case study. please help me to prepare a Recommendation