4. Use information in Exhibit 5, attempt to compute the breakeven revenue for three different conditions: (1) assumes Marilyn wants to cover only the annual fixed costs through operations, and without paying a salary for herself; (2) assumes Marilyn wants to cover the annual fixed costs, and charges a modest $30,000 in salary and benefits, to cover her cost of inventory, her previous years loss and some other personal expenses; (3) assumes Marilyn can manage to cut the Cost of Sales by 10%, and she wants to cover the annual fixed costs and charges a modest $30,000 in salary and benefits. (20 points)

Hints: The key is to identify fixed and variable costs from Exhibit 5, because

Breakeven Sales Revenue = Fixed Operating Costs/ 1 - (Variable Costs/Net Sales)

You may opt to provide detailed explanations, justifications and computation step by step. This will help you to earn partial points.

5. Please attempt a percentage of sales pro forma analysis and conduct a Cowgirl Chocolates Financial Forecasts. (20 points)

Marilyn has two proposals (A and B) for her business expansion in 2001. Proposal A is a modest one. The numbers in column 1 and column 2 of Table 1 can be rationalized by simply assuming that Marilyn is successful in obtaining a large regional or national distributor contract that would yield $140,300 in sales. Please study the % numbers and the $ values carefully to understand the rationale and inter-relationship among these numbers. Then, try to finish the unknown ?%s and $?s for Proposal B in column 3 and column 4, for which Marilyn is attempting to achieve an ambitious $300,000 in sales.

After you finish your computation, just replace the ?%s and $?s in the table with your answer. During the process, please make your reasonable assumptions. It is recommended to think about some basic ?%s, define them first, and then finish the computation for the $?s. Your recommendation will help Marilyn to make the final decision for business development. For your ease, some numbers are provided already.

Hints: Besides filling the unknowns, you may opt to provide additional explanations, justifications and computations to me in writing. This will help you to earn partial points.

Table 1. Cowgirl Chocolates Financial Forecast with Assumed National Contract and in Operating Improvements in Operating Cost Percentages

Revenue	2001	% Of	2001	% Of
	Proposal A	Sales	Proposal B	Sales
	Column 1	Column 2	Column 3	Column 4
Product Sales	$122,000	85%	$255,000	85%
Miscellaneous Income	$18,300	15%	$?	15%
Total Net Sales	$140,300	100%	$300,000	100%
Cost of Sales (shipped portion of Choc,Caramel, Packaging, and Printing)	$56,120	40%	$?	?%
Gross Margin	$84, 180		$?
(% Gross Margin)		60%		?%
Operating Expenses
Advertising/Promotion
Trade Shows	$7,500		$?
Web site	$1,500		$?
Subtotal, Advertising And Promotion	$9,000	6.40%	$?	?%
Travel	$14,030	10.00%	$?	?%
Miscellaneous	$2,806	2.00%	$?	?%
Payroll Expense/Benefits (@20%)	$23,000	Marilyn's salary	$30,000	Marilyn's salary
Shipping and Postage	$18,300	15% of product sales	$?	15% of product sales
Insurance, Lawyers, Prof. Memberships	$2,525	1.80%	$5,400	1.80%
Brokers	$4,209	3.00%	$6,000	2.00%
Office Expenses (phone, supplies, photography, taxes)	$4,209	3.00%	$9,000	3.00%
Total Operating Expenses	$78,079		$?
Grand Total All Expenses	$134,199		$?
Profit Before Interest and Taxes	$6,101		$?
Taxes Incurred (Credit @18% -approx tax rate)	$1,098		$?
Net Profit After Taxes	$5,002		$?
(Net Profit After Taxes / Sales)		3.57%		$?

Cowgirl Chocolates 521 Case Twenty One BIT 5 Cowgirl Chocolates Income Statem ent (Accountant's unaudited estimate for Year 2000) %of Sales REVENUES Product Sales Miscellaneous Income $26,000 5 4,046 Total Net Sales 10096 $30,046 caramel, packaging, and printing) Gross Margin OPERATING EXPENSES Advertising& Promotions: $14,197 $15,849 47% 53% Trade Shows 6,423 1,390 200 Web site Charitable Contributions Subtotal Travel Miscellaneous Payroll Expense/Benefits @ 20% 8,013 5,786 1,071 27% 19% 4% (no personnel charges) (no current owner ship of PPE) (not included in income statement) 0% Depreciation on Plant and Equipment 0% Continuing Inventory (finished and unfinished) 4,046 139% Shipping & Postage Insurance, Lawyers, Professional Memberships Brokers Office Expenses (phone, supplies, photography, 437 540 1.596 1.8% 2,131 22,024 S36,221 ($6,175) [see note] 7% taxes) Total Operating Expenses Grand Total: All Expenses Profit before Interest & Taxes Interest Expense (short term) interest Expense (long term) laxes Incurred (Credit 18%, approximate ($1,124) ($5,051.15) tax rate) Net Profit after Taxes Net Profit after Taxes/Sales -17% ote The($ $6,1 175) loss plus the $16,848 in inventory build-up approximates the cash needed ($23,023-see Exhibit 4) to cover the total 4) to cover the total expenses for year 2000. Cowgirl Chocolates 521 Case Twenty One BIT 5 Cowgirl Chocolates Income Statem ent (Accountant's unaudited estimate for Year 2000) %of Sales REVENUES Product Sales Miscellaneous Income $26,000 5 4,046 Total Net Sales 10096 $30,046 caramel, packaging, and printing) Gross Margin OPERATING EXPENSES Advertising& Promotions: $14,197 $15,849 47% 53% Trade Shows 6,423 1,390 200 Web site Charitable Contributions Subtotal Travel Miscellaneous Payroll Expense/Benefits @ 20% 8,013 5,786 1,071 27% 19% 4% (no personnel charges) (no current owner ship of PPE) (not included in income statement) 0% Depreciation on Plant and Equipment 0% Continuing Inventory (finished and unfinished) 4,046 139% Shipping & Postage Insurance, Lawyers, Professional Memberships Brokers Office Expenses (phone, supplies, photography, 437 540 1.596 1.8% 2,131 22,024 S36,221 ($6,175) [see note] 7% taxes) Total Operating Expenses Grand Total: All Expenses Profit before Interest & Taxes Interest Expense (short term) interest Expense (long term) laxes Incurred (Credit 18%, approximate ($1,124) ($5,051.15) tax rate) Net Profit after Taxes Net Profit after Taxes/Sales -17% ote The($ $6,1 175) loss plus the $16,848 in inventory build-up approximates the cash needed ($23,023-see Exhibit 4) to cover the total 4) to cover the total expenses for year 2000