A friend, Jay Green, recently opened a cupcake store to sell gourmet cupcakes. Jay has asked you for help with formulating the projected numbers for the business and help analyze if the company will be successful. Using the skills you have developed in Managerial Accounting, you will analyze the business to provide a forecast and recommendations for the business venture. Jay opened the business on January 1, 2020 and has provided the financial information for the year ended December 31, 2020. Provide answers to the required items based on the information provided below and other amounts calculated. Be sure to show your calculations.

Cost information:

• Jay purchases his cupcakes from a baker for $10.20 per dozen cupcakes.
• Costs for packaging the cupcakes (bags and boxes) average 2 cents (.02) per cupcake.
• Jay has a location near downtown that is rented for $600 per month.
• Utilities average $110 per month.
• Fixtures for the business were purchased for $8,000 (depreciation will be $800 per year for 10 years)
• Jay is open 7 days per week from 10:00 AM until 6:00 PM. The store is operated by one employee at a time. The employees are paid $10.50 per hour.
• Business insurance has been obtained at a cost of $660 per year.
• Jay plans on spending $500 per month for advertising.
• The financial statements prepared by Jay for the year ended December 31, 2020 are attached.

Requirements:

Using separate tabs in a spreadsheet, provide your answers for the following.

1. What are the variable costs per cupcake? What are the annual fixed costs? List the individual costs. (10 points).
2. Develop the annual cost formula in Y = a + bX format, i.e. Total Costs = Fixed Costs + (Variable Cost per Unit times number of units). (Provide just the equation for calculating the total costs for different quantities; (10 points).