Question
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
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 ACCT 551 Accounting for Managers, you will analyze the business to provide a forecast and recommendations for the business venture. Jay opened the business on January 1, 2019 and has provided the financial information for the year ended December 31, 2019. 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 $700 per month. Utilities average $125 per month. Fixtures for the business were purchased for $10,000 (depreciation will be $1,000 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 $780 per year. Jay plans on spending $750 per month for advertising. The financial statements prepared by Jay for the year ended December 31, 2019 are attached.
Using separate tabs in a spreadsheet, provide your answers for the following. 1 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;.
2 Jay is currently selling the cupcakes for $3.25 each. Determine if Jay's selling price is appropriate by researching what the target price should be. Research who the competition is and at what price they are selling gourmet cupcakes (this will provide a base for a target price). Provide the detailed information for at least 3 competitors. Based on the target price developed, a projection of selling 24,000 cupcakes with an expectation of a 14% profit, what is the maximum cost allowable for all expenses? .
3 Develop a price using cost-based pricing assuming that Jay expects to sell 24,000 cupcakes a year and would like to have a 14% profit .
4 If the selling price is $3.25 per cupcake, what is the contribution margin per cupcake and contribution margin ratio .
5 At a selling price of $3.25 per cupcake, how many cupcakes need to be sold in order to break-even? What is the break-even in sales dollars? .
6 Based on a selling price of $3.25 make cost/volume/profit graph .
7 make cash budget for the company's first year of operations based on sales of 24,000 cupcakes at a price of $3.25 per cupcake. The budget should be prepared on a quarterly basis. Assume all sales are cash sales and that all costs and expenses are paid in cash. Rent, insurance, and advertising costs will be paid on a monthly basis. A minimum cash balance of $2,500 should be maintained (Module 22) (20 points).
8 Prepare the company's forecasted income statement for the year ended December 31, 2020 based on the sale of 24,000 cupcakes at $3.25 per cupcake .
9 make forecasted balance sheet as of December 31, 2020 based on the sale of 24,000 cupcakes at $3.25 per cupcake .
10 make forecasted statement of cash flows for the year ended December 31, 2020 based on the sale of 24,000 cupcakes at $3.25 per cupcake.
11 Based on the information included in Module 23, provide a minimum of three variances that Jay could analyze to monitor the business and explain how Jay could use these to improve the business.
12 For future capital investment decisions, which capital budgeting model discussed in Module 25 would you recommend to Jay? Why?
13 .What is your recommendation to Jay regarding this business venture? Provide an explanation incorporating the results of the calculations performed
Jay's Cupcakes Income Statement For the year December 31, 2019
Sales $ 65,000
Cost of Goods Sold $ 17,400
Gross Profit $ 47,600
Operating Expenses
Salaries $ 26,200
Rent $ 8,400
Advertising $ 8,000
Utilities $ 1,500
Depreciation $ 1,000
Insurance $ 780 $ 45,880
Net Income $ 1,720
Jay's Cupcakes Retained Earnings Statement For the year December 31, 2019
Retained Earnings, beginning $ -
Net Income $ 1,720
Retained Earnings, ending $ 1,720
Jay's Cupcakes Balance Sheet As of December 31, 2019
Assets Current Assets Cash $ 7,720
Total Current Assets $ 7,720
Property, Plant, and Equipment, net $ 9,000
Total Assets $ 16,720
Liabilities and Equity Common Stock $ 15,000
Retained Earnings $ 1,720
Total Liabilities and Equity $ 16,720
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