1. Analyze the sales for 2023 vs. 2022. Show the calculations. Explain your findings.
2. Analyze the gross margin $ and % for 2023 vs. 2022. Show the calculations. Explain your findings.
3. Prepare and show a common-size income statement for 2023 and 2022. Explain your findings.
4. Explain if we are managing working capital efficiently. Show the calculations.
5. Present the calculation of a ratio that demonstrates that the owners should not be concerned with our results. Explain why.
6. Write a narrative summarizing the results for the year.

Part 2

1. Calculate and show the total capital, the debt, and the equity needed to fund the catering business.
2. Calculate and show the lowest IRR % this business can generate to make this a worthwhile investment.
3. Calculate and show the annual "finance" break-even sales volume needed for the catering business.
4. List the advantages and disadvantages (pros and cons) of using debt and the advantages and disadvantages (pros and cons) of using equity to fund the business.
5. Explain whether the catering business should be managed as a separate business or combined with the cookie store business. Support your answer.

Having discovered that customers wanted to make larger orders for special events and other circumstances, Chips started promoting the sale of boxes of cookies. Customers could still buy a box of 4 for $10, but if they bought more than 1 box, they would get a $1 discount per box. The board is concerned about its impact on gross margin but believes that it will improve profitability going forward. Also, based on the results from last year and this year, the board has been investigating starting a catering business, which would take advantage of the customers' desire to buy in larger quantities and the brand recognition that has been established. Chips has become popular and known for its quality. After doing some discovery-driven planning, they found that Boise would not be a big enough market to make it work. But, they have done some further investigation and testing and found that this could work in Salt Lake City. The Chips brand has been very successful and would be expanded to include muffins and cupcakes. They have put together some rough plans and need our analysis to see if it makes sense. Please prepare the board report by providing answers and analysis in the Chips (Year 4) assignment document found above. Be sure to include the items requested, including a summary when requested. On some of the questions, you need to use your own judgment as to what analysis to provide. Be sure to be thorough in your answers. Part 1 1. Analyze the sales for 2023 vs. 2022. Use your judgment as to what methods to use to analyze (it could be variance analysis, Price Volume Mix analysis, by store, by cookie, or other analysis). You may also do some trend analysis by bringing in revenue information from 2020 and 2021. Make sure you are understanding the major story lines and use your analyses (use more than 1 method of analysis) to tell the story of what happened with sales. Summarize your analysis. 2. Analyze the gross margin $ and % for 2023 vs. 2022. Use your judgment as to what methods to use to analyze it. You may also do some trend analysis by bringing in gross margin information from 2020 and 2021. Make sure you are understanding the major story lines and use the analyses (use more than 1 method of analysis) to tell the story of what happened with the gross margin. Summarize your analysis. 3. The board is concerned that our operating expenses increased by 6.4% over last year. I am not as concerned. Prepare a common-size income statement for the 2 years for me to show to the board to alleviate their concerns. In your common-size income statement, show only the 2 years' percentages side by side. Summarize your analysis. 4. The board is concerned that we are not managing our working capital as efficiently as we could be. Is their concern justified? How are we doing compared to Year 2 (2021)? Analyze the working capital, in particular our days of cash, days of A/R, days of Inventory, and days of A/P to help you answer the question. 5. The board is concerned that our net income percent continues to be fairly low. Present a ratio that demonstrates that the owners, who are expecting a 15% return, should not be concerned. Explain why. 6. Write a narrative of the results for 2023. In the narrative be sure to include comparisons to 2022 results. Also be sure to include the following sections: Summary, Revenue, Gross Margin, Operating Expenses, and Cash Flow/Balance Sheet. Part 2 The board would like an analysis of the catering opportunity in Salt Lake City. Instead of leasing a facility, they would like to purchase a small building and the associated equipment. They want to understand the capital requirements and the "finance" break-even number of unit sales. | Part 2 The board would like an analysis of the catering opportunity in Salt Lake City. Instead of leasing a facility, they would like to purchase a small building and the associated equipment. They want to understand the capital requirements and the "finance" break-even number of unit sales. | They have done some preliminary investigation and have the following information: A building could be purchased for $575,000. A mortgage (amortizing loan) could be obtained for 75% of the price at a 6.5% interest rate. 2 delivery vans could be purchased for a total of $80,000. An amortizing loan could be obtained for 95% of the price at a 7.0% interest rate. . Equipment could be purchased for a total of $80,000. Working Capital needs (for cash, inventory, A/R, and A/P) would be $85,000. An interest-only line of credit loan of $75,000 could be obtained at a 9.0% interest rate. Funds from the line of credit could be used to finance the equipment or other capital needs. To minimize the need for more investor money, we will use all of that loan. Total operating expenses (fixed expenses) would be $250,000 per year (these expenses will be paid out of the working capital). The average selling price of the products would be $2.50 and the average cost (including material and labor) would be $1.55. The tax rate is 25%. 1. What is the total capital needed to fund the catering business (i.e., how much total capital is needed to pay for the building, vans, equipment, and working capital)? Based on the loans that have been lined up, how much would be debt? Therefore, how much investor money do we need? Summarize in a table that shows the details of the debt and equity (investor money) that is needed to fund the business. 2. Using the debt and equity calculated in Part 2, question 1, and assuming that investors expect a 15% return, what is the lowest IRR % this business can generate to make this a worthwhile investment? (Don't over-complicate. What is the minimum IRR that would be acceptable?) 3. What is the annual "finance" break-even sales volume needed for the catering business (make sure to include the cost of capital)? Assuming we are baking 26 days per month (Monday through Saturday), how many dozen products do we need to make and sell per day? 4. As we decide how to capitalize this new venture, what are the advantages and disadvantages of bringing in new investors vs raising the capital via debt? In other words, what are the pros and cons of new investors and what are the pros and cons of using debt (use bullet points). 5. Do you think we should run the catering business as a separate business unit or combined with its cookie-store business? Why or why not? Support your answer. B 2022 (Year 3) Actual 4 5 Revenue $ 6 7 Material Cost of Goods Sold 8 Labor Cost of Goods Sold $ 9 Total Cost of Goods Sold 10 Gross Margin $ 11 Gross Margin % 12 13 Operating Expenses 14 Lease Expense $ 15 Utilities Expense 16 Manager Salary Expense $ 17 Manager Salary PT&B Expense $ 18 Hourly Wage Expense 19 Hourly Wage PT&B Expense $ 20 Marketing Expense $ 21 Professional Services Expense $ 22 Office Supplies and Misc Supplies Expense $ 23 Repairs and Maintenance Expense $ 24 Insurance Expense $ 25 Depreciation Expense 26 Total Operating Expenses $ 27 28 Earnings Before Interest and Taxes $ 29 30 Interest Expense $ 31 Tax Expense $ 32 Net Income $ 33 Net Income % 34 35 Chips 36 Balance Sheet 37 38 Current Assets 39 Cash $ 40 Accounts Receivable $ 41 Inventory $ 42 Total Current Assets $ 43 44 Equipment and Leasehold Improvements LC In Year 4 Results Revenue 2023 (Year 4) Actual 1,329,514 $ 573,021 $ 202,202 $ 775,223 $ 554,291 $ 41.7% 113,150 $ 45,838 $ 125,460 $ 39,262 $ 88,778 $ 5,504 $ 24,268 $ 29,483 $ 3,098 $ 12,476 $ 14,225 $ 13,390 $ 514,932 $ 39,359 $ 2,703 $ 9,164 $ 27,492 $ 2.1% 114,877 $ 11,043 $ 22,919 $ 148,839 $ 133,896 $ Sal, Wages, Benefits 1,468,206 648,050 224,498 872,548 595,658 40.6% 115,413 51,484 128,597 40,959 91,743 5,688 37,585 34,646 4,297 15,776 8,078 13,390 547,656 48,002 786 11,804 35,412 2.4% 134,284 13,246 29,477 177,007 133,896 (+ D 3 Current Assets Cash O Accounts Receivable 1 Inventory 2 Total Current Assets B Equipment and Leasehold Improvements 5 Accumulated Depreciation 5 Total Fixed Assets 7 3 Total Assets 3 O Current Liabilities 1 Accounts Payable 2 Taxes Payable 3 Total Current Liabilities 1 5 Long-term Debt 5 Total Liabilities 2 3 Stock 9 Retained Earnings Total Equity 1 2 Total Liabilities and Equity 3 1 $ $ $ $ $ $ $ $ $ $ $ $ $ $ is is es in es es es iseses $ $ $ 114,877 $ 11,043 $ 22,919 $ 148,839 $ 133,896 $ (77,932) $ 55,964 $ 204,803 $ 37,783 $ 9,164 $ 46,947 $ 33,791 $ 80,738 $ 100,000 $ 24,065 $ 124,065 $ 204,803 $ 134,284 13,246 29,477 177,007 133,896 (91,322) 42,574 219,581 38,477 11,804 50,281 9,823 60,104 100,000 59,477 159,477 219,581 A 1 Chips 2 Cookie Revenue B 4 Boise Town Square 5 Individual Units 5 Box Units 7 Total Cookies B 9 Individual Revenue 0 Box Revenue 1 Total Revenue 2 3 Boise Spectrum Center 4 Individual Units 5 Box Units 6 Total Cookies 7 8 Individual Revenue 9 Box Revenue 20 Total Revenue 1 2 Vista Village 3 Individual Units 4 Box Units 5 Total Cookies 26 27 Individual Revenue 28 Box Revenue 29 Total Revenue =0 =1 Total 2 Individual Units =3 Box Units 4 Total Cookies 5 6 Individual Revenue 7 Box Revenue 8 Total Revenue 9 -0 $ $ $ SSS $ $ $ $ $ $ $ B 2022 (Year 3) Actual 39,787 30,445 161,567 119,361 $ 304,450 $ 423,811 $ 36,662 34,548 174,854 109,986 $ 345,480 $ 455,466 $ 35,643 36,522 181,731 106,929 $ 343,308 $ 450,237 $ 112,092 101,515 518,152 336,276 $ 993,238 $ 1,329,514 $ 2023 (Year 4) Actual 35,483 38,487 189,431 106,449 361,778 468,227 34,258 39,482 192,186 102,774 379,027 481,801 32,478 45,983 216,410 97,434 420,744 518,178 102,219 123,952 598,027 306,657 1,161,549 1,468,206 D E F G Individual Box of 4 H Cookie Prices Total Per Cookie 3.00 2.50 $ 3.00 $ $ 10.00 $ J 1 Jx Chips A Chips Salaries and Wages PT&B (Payroll Taxes and Benefits) Manager Salary Managers (1 per Store) Total Managers' Salary O Managers' Payroll Taxes (6.2%) 1 Managers' Benefits 2 Managers' Total PT&B 3 4 Hourly Workers (per Hour) 5 5 Bakers: 7 Direct Labor Hours - Actual 3 Direct Labor Wages Direct Labor Payroll Taxes (6.2%) O Direct Labor Cost of Goods Sold 1 2 Store Front: 3 Opeating Expense Labor Hours - Actual 4 Total Wages - Operating Expenses 5 Payroll Taxes (6.2%) 6 Total Operating Expense Wages and PT&B 7 B 9 O $ $ $ $ es $ SSS $ $ $ B 2022 (Year 3) Actual 62,730 $ 2 125,460 $ 7,779 $ 31,483 $ 39,262 $ 9.50 $ 20,042 190,397 $ 11,805 $ 202,202 $ 9,345 88,778 $ 5,504 $ 94,282 $ 2023 (Year 4) Actual 64,298 2 128,597 7,973 32,986 40,959 9.70 21,793 211,392 13,106 224,498 9,458 91,743 5,688 97,431 D Having discovered that customers wanted to make larger orders for special events and other circumstances, Chips started promoting the sale of boxes of cookies. Customers could still buy a box of 4 for $10, but if they bought more than 1 box, they would get a $1 discount per box. The board is concerned about its impact on gross margin but believes that it will improve profitability going forward. Also, based on the results from last year and this year, the board has been investigating starting a catering business, which would take advantage of the customers' desire to buy in larger quantities and the brand recognition that has been established. Chips has become popular and known for its quality. After doing some discovery-driven planning, they found that Boise would not be a big enough market to make it work. But, they have done some further investigation and testing and found that this could work in Salt Lake City. The Chips brand has been very successful and would be expanded to include muffins and cupcakes. They have put together some rough plans and need our analysis to see if it makes sense. Please prepare the board report by providing answers and analysis in the Chips (Year 4) assignment document found above. Be sure to include the items requested, including a summary when requested. On some of the questions, you need to use your own judgment as to what analysis to provide. Be sure to be thorough in your answers. Part 1 1. Analyze the sales for 2023 vs. 2022. Use your judgment as to what methods to use to analyze (it could be variance analysis, Price Volume Mix analysis, by store, by cookie, or other analysis). You may also do some trend analysis by bringing in revenue information from 2020 and 2021. Make sure you are understanding the major story lines and use your analyses (use more than 1 method of analysis) to tell the story of what happened with sales. Summarize your analysis. 2. Analyze the gross margin $ and % for 2023 vs. 2022. Use your judgment as to what methods to use to analyze it. You may also do some trend analysis by bringing in gross margin information from 2020 and 2021. Make sure you are understanding the major story lines and use the analyses (use more than 1 method of analysis) to tell the story of what happened with the gross margin. Summarize your analysis. 3. The board is concerned that our operating expenses increased by 6.4% over last year. I am not as concerned. Prepare a common-size income statement for the 2 years for me to show to the board to alleviate their concerns. In your common-size income statement, show only the 2 years' percentages side by side. Summarize your analysis. 4. The board is concerned that we are not managing our working capital as efficiently as we could be. Is their concern justified? How are we doing compared to Year 2 (2021)? Analyze the working capital, in particular our days of cash, days of A/R, days of Inventory, and days of A/P to help you answer the question. 5. The board is concerned that our net income percent continues to be fairly low. Present a ratio that demonstrates that the owners, who are expecting a 15% return, should not be concerned. Explain why. 6. Write a narrative of the results for 2023. In the narrative be sure to include comparisons to 2022 results. Also be sure to include the following sections: Summary, Revenue, Gross Margin, Operating Expenses, and Cash Flow/Balance Sheet. Part 2 The board would like an analysis of the catering opportunity in Salt Lake City. Instead of leasing a facility, they would like to purchase a small building and the associated equipment. They want to understand the capital requirements and the "finance" break-even number of unit sales. | Part 2 The board would like an analysis of the catering opportunity in Salt Lake City. Instead of leasing a facility, they would like to purchase a small building and the associated equipment. They want to understand the capital requirements and the "finance" break-even number of unit sales. | They have done some preliminary investigation and have the following information: A building could be purchased for $575,000. A mortgage (amortizing loan) could be obtained for 75% of the price at a 6.5% interest rate. 2 delivery vans could be purchased for a total of $80,000. An amortizing loan could be obtained for 95% of the price at a 7.0% interest rate. . Equipment could be purchased for a total of $80,000. Working Capital needs (for cash, inventory, A/R, and A/P) would be $85,000. An interest-only line of credit loan of $75,000 could be obtained at a 9.0% interest rate. Funds from the line of credit could be used to finance the equipment or other capital needs. To minimize the need for more investor money, we will use all of that loan. Total operating expenses (fixed expenses) would be $250,000 per year (these expenses will be paid out of the working capital). The average selling price of the products would be $2.50 and the average cost (including material and labor) would be $1.55. The tax rate is 25%. 1. What is the total capital needed to fund the catering business (i.e., how much total capital is needed to pay for the building, vans, equipment, and working capital)? Based on the loans that have been lined up, how much would be debt? Therefore, how much investor money do we need? Summarize in a table that shows the details of the debt and equity (investor money) that is needed to fund the business. 2. Using the debt and equity calculated in Part 2, question 1, and assuming that investors expect a 15% return, what is the lowest IRR % this business can generate to make this a worthwhile investment? (Don't over-complicate. What is the minimum IRR that would be acceptable?) 3. What is the annual "finance" break-even sales volume needed for the catering business (make sure to include the cost of capital)? Assuming we are baking 26 days per month (Monday through Saturday), how many dozen products do we need to make and sell per day? 4. As we decide how to capitalize this new venture, what are the advantages and disadvantages of bringing in new investors vs raising the capital via debt? In other words, what are the pros and cons of new investors and what are the pros and cons of using debt (use bullet points). 5. Do you think we should run the catering business as a separate business unit or combined with its cookie-store business? Why or why not? Support your answer. B 2022 (Year 3) Actual 4 5 Revenue $ 6 7 Material Cost of Goods Sold 8 Labor Cost of Goods Sold $ 9 Total Cost of Goods Sold 10 Gross Margin $ 11 Gross Margin % 12 13 Operating Expenses 14 Lease Expense $ 15 Utilities Expense 16 Manager Salary Expense $ 17 Manager Salary PT&B Expense $ 18 Hourly Wage Expense 19 Hourly Wage PT&B Expense $ 20 Marketing Expense $ 21 Professional Services Expense $ 22 Office Supplies and Misc Supplies Expense $ 23 Repairs and Maintenance Expense $ 24 Insurance Expense $ 25 Depreciation Expense 26 Total Operating Expenses $ 27 28 Earnings Before Interest and Taxes $ 29 30 Interest Expense $ 31 Tax Expense $ 32 Net Income $ 33 Net Income % 34 35 Chips 36 Balance Sheet 37 38 Current Assets 39 Cash $ 40 Accounts Receivable $ 41 Inventory $ 42 Total Current Assets $ 43 44 Equipment and Leasehold Improvements LC In Year 4 Results Revenue 2023 (Year 4) Actual 1,329,514 $ 573,021 $ 202,202 $ 775,223 $ 554,291 $ 41.7% 113,150 $ 45,838 $ 125,460 $ 39,262 $ 88,778 $ 5,504 $ 24,268 $ 29,483 $ 3,098 $ 12,476 $ 14,225 $ 13,390 $ 514,932 $ 39,359 $ 2,703 $ 9,164 $ 27,492 $ 2.1% 114,877 $ 11,043 $ 22,919 $ 148,839 $ 133,896 $ Sal, Wages, Benefits 1,468,206 648,050 224,498 872,548 595,658 40.6% 115,413 51,484 128,597 40,959 91,743 5,688 37,585 34,646 4,297 15,776 8,078 13,390 547,656 48,002 786 11,804 35,412 2.4% 134,284 13,246 29,477 177,007 133,896 (+ D 3 Current Assets Cash O Accounts Receivable 1 Inventory 2 Total Current Assets B Equipment and Leasehold Improvements 5 Accumulated Depreciation 5 Total Fixed Assets 7 3 Total Assets 3 O Current Liabilities 1 Accounts Payable 2 Taxes Payable 3 Total Current Liabilities 1 5 Long-term Debt 5 Total Liabilities 2 3 Stock 9 Retained Earnings Total Equity 1 2 Total Liabilities and Equity 3 1 $ $ $ $ $ $ $ $ $ $ $ $ $ $ is is es in es es es iseses $ $ $ 114,877 $ 11,043 $ 22,919 $ 148,839 $ 133,896 $ (77,932) $ 55,964 $ 204,803 $ 37,783 $ 9,164 $ 46,947 $ 33,791 $ 80,738 $ 100,000 $ 24,065 $ 124,065 $ 204,803 $ 134,284 13,246 29,477 177,007 133,896 (91,322) 42,574 219,581 38,477 11,804 50,281 9,823 60,104 100,000 59,477 159,477 219,581 A 1 Chips 2 Cookie Revenue B 4 Boise Town Square 5 Individual Units 5 Box Units 7 Total Cookies B 9 Individual Revenue 0 Box Revenue 1 Total Revenue 2 3 Boise Spectrum Center 4 Individual Units 5 Box Units 6 Total Cookies 7 8 Individual Revenue 9 Box Revenue 20 Total Revenue 1 2 Vista Village 3 Individual Units 4 Box Units 5 Total Cookies 26 27 Individual Revenue 28 Box Revenue 29 Total Revenue =0 =1 Total 2 Individual Units =3 Box Units 4 Total Cookies 5 6 Individual Revenue 7 Box Revenue 8 Total Revenue 9 -0 $ $ $ SSS $ $ $ $ $ $ $ B 2022 (Year 3) Actual 39,787 30,445 161,567 119,361 $ 304,450 $ 423,811 $ 36,662 34,548 174,854 109,986 $ 345,480 $ 455,466 $ 35,643 36,522 181,731 106,929 $ 343,308 $ 450,237 $ 112,092 101,515 518,152 336,276 $ 993,238 $ 1,329,514 $ 2023 (Year 4) Actual 35,483 38,487 189,431 106,449 361,778 468,227 34,258 39,482 192,186 102,774 379,027 481,801 32,478 45,983 216,410 97,434 420,744 518,178 102,219 123,952 598,027 306,657 1,161,549 1,468,206 D E F G Individual Box of 4 H Cookie Prices Total Per Cookie 3.00 2.50 $ 3.00 $ $ 10.00 $ J 1 Jx Chips A Chips Salaries and Wages PT&B (Payroll Taxes and Benefits) Manager Salary Managers (1 per Store) Total Managers' Salary O Managers' Payroll Taxes (6.2%) 1 Managers' Benefits 2 Managers' Total PT&B 3 4 Hourly Workers (per Hour) 5 5 Bakers: 7 Direct Labor Hours - Actual 3 Direct Labor Wages Direct Labor Payroll Taxes (6.2%) O Direct Labor Cost of Goods Sold 1 2 Store Front: 3 Opeating Expense Labor Hours - Actual 4 Total Wages - Operating Expenses 5 Payroll Taxes (6.2%) 6 Total Operating Expense Wages and PT&B 7 B 9 O $ $ $ $ es $ SSS $ $ $ B 2022 (Year 3) Actual 62,730 $ 2 125,460 $ 7,779 $ 31,483 $ 39,262 $ 9.50 $ 20,042 190,397 $ 11,805 $ 202,202 $ 9,345 88,778 $ 5,504 $ 94,282 $ 2023 (Year 4) Actual 64,298 2 128,597 7,973 32,986 40,959 9.70 21,793 211,392 13,106 224,498 9,458 91,743 5,688 97,431 D