Based on the attached CASE of YALLA MOMOS Company, you are required to answer ALL of the following QUESTIONS: 1. Discuss the main issues faced by Yalla Momos? (15 points) 2. Identify the relevant non-financial (qualitative) factors which Yalla Momos should consider in the decision to expand. (15 points) 3. Calculate the following: (10 points) a) Breakeven point in units and AED for 2015. b) Margin of Safety in units and AED for 2015. 4. Prepare the Yalla Momos income statement (using contribution margin format) for 2016: (15 points) a) without expansion b) with expansion 5. Calculate the Breakeven point in units and AED for 2016: (15 points) a) without expansion b) with expansion 6. Calculate the Margin of Safety in units and AED for 2016 (10 points) a) without expansion b) with expansion 7. Based on your work in no. 3, 4, 5 & 6 above, compare and contrast the before and after expansion estimates and accordingly recommend what course of action should Yalla Momos take. (20 points) Based on the attached CASE of YALLA MOMOS Company, you are required to answer ALL of the following QUESTIONS: 1. Discuss the main issues faced by Yalla Momos? (15 points) 2. Identify the relevant non-financial (qualitative) factors which Yalla Momos should consider in the decision to expand. (15 points) 3. Calculate the following: (10 points) a) Breakeven point in units and AED for 2015. b) Margin of Safety in units and AED for 2015. 4. Prepare the Yalla Momos income statement (using contribution margin format) for 2016: (15 points) a) without expansion b) with expansion 5. Calculate the Breakeven point in units and AED for 2016: (15 points) a) without expansion b) with expansion 6. Calculate the Margin of Safety in units and AED for 2016: (10 points) a) without expansion b) with expansion 7. Based on your work in no. 3, 4, 5 & 6 above, compare and contrast the before and after expansion estimates and accordingly recommend what course of action should Yalla Momos take. (20 points) BUSINESS Goel and his brother started Yalla Momos in 2012 (see Exhibit 2). Yalla was an Arabic word, meaning, "let us go." The restaurant was strategically located in the residential district of Al Karama (Karama), which was a very popular market for Indian food. Karama was close to Dubai Creek and part of the bustling older part of the city. Karama was considered the ultimate place for shopping and cating on a shoestring budget and was home to approximately 135 restaurants. Goel and his brother knew that if their prices were right, they would attract customers. They collected the menus of other restaurants in the area and came up with a rough estimate of what they could charge for their momos. The basic version was priced at AED13, while other versions cost between AED12 and AED15. These prices were estimated to yield a gross profit margin of 40 to 50 per cent. Goel and his brother deliberately kept the prices low to make their momos more attractive to buyers and thereby capture the market. They did not undertake any major marketing activities, except for posting on Facebook and other social media sites. Using Goel's savings, they made a basic investment in utensils and other necessary equipment and opened a small space that sat 12 customers (see Exhibit 3). Given the great demand for momos, Goel was able to quit his corporate branding job within three months of starting the restaurant. His wife also joined the business, the sales of which continued to increase. The restaurant's two unique selling points were its low prices and the fact that momos could be consumed as a snack, at any time of day. Goel focused on providing authentic and tasty momos and ensuring customer satisfaction. The restaurant was designated "pocket friendly" on the Zomato website. Zomato, used daily by millions of diners in more than 10,000 cities across 23 countries, gave Yalla Momos four stars out of five and posted a number of positive reviews from customers, including the following: [I] have always loved the concept of momos. This place serves (everything from steamed to fried momos. I have tried their spinach, vegetable, shrimp, and chicken momos. All are equally good in taste. Conveniently located in the heart of the city, having multiple branches, for a quick and a tasty bite, this place is a must try. I often order their food home, and it never disappoints. Simone Jham No frills, nothing fancy here. It's a cozy, little, humble joint that serves good momos. You can choose to have them fried or steamed. We recommend the latter. Two in-house sauces accompany your plate of momos, but we think you might be better off asking for some ketchup. The Hungry Architects, Zomato the Expert in Al Karama' Yalla Momos had a number of competitors, the foremost being Momos Magic. Momos Magic had five outlets in Dubai and, while it charged higher prices than Yalla Momos did, its menu options were more limited (see Exhibit 4). "To capitalize on the huge demand Yalla Momos had created. Goel opened a second branch in Dubai International city, a flourishing residential district with over 22,000 residences. The third Research by Euromonitor International indicated there were 6,021 food and beverage outlets in the United Arab Emirates, with another 19,000 expected to open by 2019. In addition, the demand for restaurant and street food was expected to increase substantially with the heavy inflow of visitors to Expo 2020. The U.A.E. government was expected to be liberal in granting licenses to all of these new restaurants, provided they met financial and legal requirements. The expected rate of inflation for 2016 was 2.4 per cent," while the price of food and non-alcoholic beverages was expected to rise by 0.05 per cent to 2.0 per cent in 2016." FINANCIALS FOR 2015 Yalla Momos, which Goel had started with his small savings in 2012, generated AED504,000 in total sales and AED156,240 in revenue in 2015. The average meal was priced at AED20, including food and beverages; beverages accounted for approximately 20 per cent of revenue. Goel was particular about the quality of the raw materials used, which included the white flour dough as well as the meat and/or vegetable and cheese fillings. No compromise was acceptable in terms of the quality of the food served. Apart from raw materials, other expenses included rent and utilities, administrative costs, and depreciation. The rent for all three locations was AED68,000 in 2015 and AED75,000 in 2016. Goel did not maintain very detailed financial records, but kept a rough estimate of overall expenses (see Exhibit 5). The owners did not pay themselves a salary, but shared in the profits of the business. PROJECTIONS FOR 2016 Following expansion, Goel decided to use advertising to boost sales at the Dubai International city restaurant and the Bur Dubai kiosk. The cost of advertising would be AED8,000 for the three locations, and advertising was projected to increase overall sales by 10 per cent, from AED504,000 in 2015 to AED554,400 in 2016. Nevertheless, Goel had to keep strict control of expenses to stay competitive. He was keen to introduce new varieties of momos, but wanted to maintain the same quality and cost. Previously, he had sourced his raw materials from nearby supermarkets; he now planned to source his materials from special wholesale markets, from which he could obtain the same material at a lower price. Buying in bulk at wholesale prices would lower costs, but would require more storage facilities to keep the raw materials fresh. FINANCIALS FOR 2016 Goel was thinking of opening one more outlet (the fourth) in Al Barsha. Al Barsha was a populated area with different nationalities and with lower rent than Karama or Bur Dubai. He thought he could capitalize on the growing demand for his product but knew that he would face stiff competition from the many cafs and quick-bite outlets already operating in Al Barsha. The central kitchen in Dubai International city was large enough to accommodate the additional cooking, but Goel would incur additional expenses if he decided to open a new kiosk (see Exhibit 6). With four locations, Goel's depreciation costs were estimated to be AED 19,000 per year. Advertising costs, meanwhile, would increase to AED12,000 per year. Goel would continue using social media for marketing. Increased advertising could boost net revenues to AED727,200 per year. Goel had never Page 2 9B17B020 BUSINESS Goel and his brother started Yalla Momos in 2012 (see Exhibit 2). Yalla was an Arabic word, meaning, "let us go."** The restaurant was strategically located in the residential district of Al Karama (Karama), which was a very popular market for Indian food. Karama was close to Dubai Creek and part of the bustling older part of the city, Karama was considered the ultimate place for shopping and eating on a shoestring budget and was home to approximately 135 restaurants. Goel and his brother knew that if their prices were right, they would attract customers. They collected the menus of other restaurants in the area and came up with a rough estimate of what they could charge for their momos. The basic version was priced at AED13, while other versions cost between AED12 and AED15. These prices were estimated to yield a gross profit margin of 40 to 50 per cent. Goel and his brother deliberately kept the prices low to make their momos more attractive to buyers and thereby capture the market. They did not undertake any major marketing activities, except for posting on Facebook and other social media sites. Using Goel's savings, they made a basic investment in utensils and other necessary equipment and opened a small space that sat 12 customers (see Exhibit 3). Given the great demand for momos, Goel was able to quit his corporate branding job within three months of starting the restaurant. His wife also joined the business, the sales of which continued to increase. The restaurant's two unique selling points were its low prices and the fact that momos could be consumed as a snack, at any time of day. Goel focused on providing authentic and tasty momos and ensuring customer satisfaction. The restaurant was designated "pocket friendly" on the Zomato website. Zomato, used daily by millions of diners in more than 10,000 cities across 23 countries, gave Yalla Momos four stars out of five' and posted a number of positive reviews from customers, including the following: [I] have always loved the concept of momos. This place serves (everything] from steamed to fried momos. [I] have tried their spinach, vegetable, shrimp, and chicken momos. All are equally good in taste. Conveniently located in the heart of the city, having multiple branches, for a quick and a tasty bite, this place is a must try. I often order their food home, and it never disappoints. Simone Jham No frills; nothing fancy here. It's a cozy, little, humble joint that serves good momos. You can choose to have them fried or steamed. We recommend the latter. Two in-house sauces accompany your plate of momos, but we think you might be better off asking for some ketchup. The Hungry Architects, Zomato the Expert in Al Karama Yalla Momos had a number of competitors, the foremost being Momos Magic Momos Magic had five outlets in Dubai and, while it charged higher prices than Yalla Momos did, its menu options were more limited (see Exhibit 4)." To capitalize on the huge demand Yalla Momos had created, Goel opened a second branch in Dubai International city, a flourishing residential district with over 22,000 residences. The third Based on the attached CASE of YALLA MOMOS Company, you are required to answer ALL of the following QUESTIONS: 1. Discuss the main issues faced by Yalla Momos? (15 points) 2. Identify the relevant non-financial (qualitative) factors which Yalla Momos should consider in the decision to expand. (15 points) 3. Calculate the following: (10 points) a) Breakeven point in units and AED for 2015. b) Margin of Safety in units and AED for 2015. 4. Prepare the Yalla Momos income statement (using contribution margin format) for 2016: (15 points) a) without expansion b) with expansion 5. Calculate the Breakeven point in units and AED for 2016: (15 points) a) without expansion b) with expansion 6. Calculate the Margin of Safety in units and AED for 2016 (10 points) a) without expansion b) with expansion 7. Based on your work in no. 3, 4, 5 & 6 above, compare and contrast the before and after expansion estimates and accordingly recommend what course of action should Yalla Momos take. (20 points) Based on the attached CASE of YALLA MOMOS Company, you are required to answer ALL of the following QUESTIONS: 1. Discuss the main issues faced by Yalla Momos? (15 points) 2. Identify the relevant non-financial (qualitative) factors which Yalla Momos should consider in the decision to expand. (15 points) 3. Calculate the following: (10 points) a) Breakeven point in units and AED for 2015. b) Margin of Safety in units and AED for 2015. 4. Prepare the Yalla Momos income statement (using contribution margin format) for 2016: (15 points) a) without expansion b) with expansion 5. Calculate the Breakeven point in units and AED for 2016: (15 points) a) without expansion b) with expansion 6. Calculate the Margin of Safety in units and AED for 2016: (10 points) a) without expansion b) with expansion 7. Based on your work in no. 3, 4, 5 & 6 above, compare and contrast the before and after expansion estimates and accordingly recommend what course of action should Yalla Momos take. (20 points) BUSINESS Goel and his brother started Yalla Momos in 2012 (see Exhibit 2). Yalla was an Arabic word, meaning, "let us go." The restaurant was strategically located in the residential district of Al Karama (Karama), which was a very popular market for Indian food. Karama was close to Dubai Creek and part of the bustling older part of the city. Karama was considered the ultimate place for shopping and cating on a shoestring budget and was home to approximately 135 restaurants. Goel and his brother knew that if their prices were right, they would attract customers. They collected the menus of other restaurants in the area and came up with a rough estimate of what they could charge for their momos. The basic version was priced at AED13, while other versions cost between AED12 and AED15. These prices were estimated to yield a gross profit margin of 40 to 50 per cent. Goel and his brother deliberately kept the prices low to make their momos more attractive to buyers and thereby capture the market. They did not undertake any major marketing activities, except for posting on Facebook and other social media sites. Using Goel's savings, they made a basic investment in utensils and other necessary equipment and opened a small space that sat 12 customers (see Exhibit 3). Given the great demand for momos, Goel was able to quit his corporate branding job within three months of starting the restaurant. His wife also joined the business, the sales of which continued to increase. The restaurant's two unique selling points were its low prices and the fact that momos could be consumed as a snack, at any time of day. Goel focused on providing authentic and tasty momos and ensuring customer satisfaction. The restaurant was designated "pocket friendly" on the Zomato website. Zomato, used daily by millions of diners in more than 10,000 cities across 23 countries, gave Yalla Momos four stars out of five and posted a number of positive reviews from customers, including the following: [I] have always loved the concept of momos. This place serves (everything from steamed to fried momos. I have tried their spinach, vegetable, shrimp, and chicken momos. All are equally good in taste. Conveniently located in the heart of the city, having multiple branches, for a quick and a tasty bite, this place is a must try. I often order their food home, and it never disappoints. Simone Jham No frills, nothing fancy here. It's a cozy, little, humble joint that serves good momos. You can choose to have them fried or steamed. We recommend the latter. Two in-house sauces accompany your plate of momos, but we think you might be better off asking for some ketchup. The Hungry Architects, Zomato the Expert in Al Karama' Yalla Momos had a number of competitors, the foremost being Momos Magic. Momos Magic had five outlets in Dubai and, while it charged higher prices than Yalla Momos did, its menu options were more limited (see Exhibit 4). "To capitalize on the huge demand Yalla Momos had created. Goel opened a second branch in Dubai International city, a flourishing residential district with over 22,000 residences. The third Research by Euromonitor International indicated there were 6,021 food and beverage outlets in the United Arab Emirates, with another 19,000 expected to open by 2019. In addition, the demand for restaurant and street food was expected to increase substantially with the heavy inflow of visitors to Expo 2020. The U.A.E. government was expected to be liberal in granting licenses to all of these new restaurants, provided they met financial and legal requirements. The expected rate of inflation for 2016 was 2.4 per cent," while the price of food and non-alcoholic beverages was expected to rise by 0.05 per cent to 2.0 per cent in 2016." FINANCIALS FOR 2015 Yalla Momos, which Goel had started with his small savings in 2012, generated AED504,000 in total sales and AED156,240 in revenue in 2015. The average meal was priced at AED20, including food and beverages; beverages accounted for approximately 20 per cent of revenue. Goel was particular about the quality of the raw materials used, which included the white flour dough as well as the meat and/or vegetable and cheese fillings. No compromise was acceptable in terms of the quality of the food served. Apart from raw materials, other expenses included rent and utilities, administrative costs, and depreciation. The rent for all three locations was AED68,000 in 2015 and AED75,000 in 2016. Goel did not maintain very detailed financial records, but kept a rough estimate of overall expenses (see Exhibit 5). The owners did not pay themselves a salary, but shared in the profits of the business. PROJECTIONS FOR 2016 Following expansion, Goel decided to use advertising to boost sales at the Dubai International city restaurant and the Bur Dubai kiosk. The cost of advertising would be AED8,000 for the three locations, and advertising was projected to increase overall sales by 10 per cent, from AED504,000 in 2015 to AED554,400 in 2016. Nevertheless, Goel had to keep strict control of expenses to stay competitive. He was keen to introduce new varieties of momos, but wanted to maintain the same quality and cost. Previously, he had sourced his raw materials from nearby supermarkets; he now planned to source his materials from special wholesale markets, from which he could obtain the same material at a lower price. Buying in bulk at wholesale prices would lower costs, but would require more storage facilities to keep the raw materials fresh. FINANCIALS FOR 2016 Goel was thinking of opening one more outlet (the fourth) in Al Barsha. Al Barsha was a populated area with different nationalities and with lower rent than Karama or Bur Dubai. He thought he could capitalize on the growing demand for his product but knew that he would face stiff competition from the many cafs and quick-bite outlets already operating in Al Barsha. The central kitchen in Dubai International city was large enough to accommodate the additional cooking, but Goel would incur additional expenses if he decided to open a new kiosk (see Exhibit 6). With four locations, Goel's depreciation costs were estimated to be AED 19,000 per year. Advertising costs, meanwhile, would increase to AED12,000 per year. Goel would continue using social media for marketing. Increased advertising could boost net revenues to AED727,200 per year. Goel had never Page 2 9B17B020 BUSINESS Goel and his brother started Yalla Momos in 2012 (see Exhibit 2). Yalla was an Arabic word, meaning, "let us go."** The restaurant was strategically located in the residential district of Al Karama (Karama), which was a very popular market for Indian food. Karama was close to Dubai Creek and part of the bustling older part of the city, Karama was considered the ultimate place for shopping and eating on a shoestring budget and was home to approximately 135 restaurants. Goel and his brother knew that if their prices were right, they would attract customers. They collected the menus of other restaurants in the area and came up with a rough estimate of what they could charge for their momos. The basic version was priced at AED13, while other versions cost between AED12 and AED15. These prices were estimated to yield a gross profit margin of 40 to 50 per cent. Goel and his brother deliberately kept the prices low to make their momos more attractive to buyers and thereby capture the market. They did not undertake any major marketing activities, except for posting on Facebook and other social media sites. Using Goel's savings, they made a basic investment in utensils and other necessary equipment and opened a small space that sat 12 customers (see Exhibit 3). Given the great demand for momos, Goel was able to quit his corporate branding job within three months of starting the restaurant. His wife also joined the business, the sales of which continued to increase. The restaurant's two unique selling points were its low prices and the fact that momos could be consumed as a snack, at any time of day. Goel focused on providing authentic and tasty momos and ensuring customer satisfaction. The restaurant was designated "pocket friendly" on the Zomato website. Zomato, used daily by millions of diners in more than 10,000 cities across 23 countries, gave Yalla Momos four stars out of five' and posted a number of positive reviews from customers, including the following: [I] have always loved the concept of momos. This place serves (everything] from steamed to fried momos. [I] have tried their spinach, vegetable, shrimp, and chicken momos. All are equally good in taste. Conveniently located in the heart of the city, having multiple branches, for a quick and a tasty bite, this place is a must try. I often order their food home, and it never disappoints. Simone Jham No frills; nothing fancy here. It's a cozy, little, humble joint that serves good momos. You can choose to have them fried or steamed. We recommend the latter. Two in-house sauces accompany your plate of momos, but we think you might be better off asking for some ketchup. The Hungry Architects, Zomato the Expert in Al Karama Yalla Momos had a number of competitors, the foremost being Momos Magic Momos Magic had five outlets in Dubai and, while it charged higher prices than Yalla Momos did, its menu options were more limited (see Exhibit 4)." To capitalize on the huge demand Yalla Momos had created, Goel opened a second branch in Dubai International city, a flourishing residential district with over 22,000 residences. The third