BUS312 Fall 2020 CASE 2 BAKERS DELIGHT INTRODUCTION Bart Johnson relaxed in his easy chair listening to the waves with his daughter Gina. He loved Jamaican beaches. He loved the smell of the salt and the sound of the seagulls. The evening sun was casting its bright orange light across the skies for just a few more minutes before it would disappear. Bart's trip to Jamaica allowed him to get away from his bun business and spend some time with his daughter in the beloved country of his birth. It was now January 2020. Bart: Gina, I'm becoming quite concerned about my bun business. Gina: Why Dad, what's the problem? Bart: The business is not generating the cash it used to. I think I made a mistake last year when I added the Light n Fruity buns to the Sweet buns I had been making in the past. I had hoped that adding Light n Fruity would have allowed me to expand the business more quickly since there is only one other company selling an upscale bun. What do I do now? I don't think the business is profitable any more. I hired all these new workers when I started making Light n Fruity! Gina: Perhaps I can help. I'll have a look at the operations, and maybe I can make some suggestions to make the business more profitable. Ten short years ago, Bart had migrated to the U.S. and settled in Miami, Florida. At last he had reached the land of opportunity! He was soon holding down two jobs and working about 60 hours per week. This was so different from Jamaica, where jobs were so difficult to find. Bart had long dreamed of owning his own business and being his own boss. As his savings took on healthy proportions, he began to seriously consider his options. In Miami, Bart met many people from Jamaica and other Caribbean islands. One of the things they frequently spoke about was their longing for the different foods from the Caribbean. In Jamaica, Bart had worked for five years with a bakery making Jamaican buns. Although there were already Jamaican bun bakeries operating in Miami Bart felt that there was plenty of room for one more. COMPANY BACKGROUND Five years ago Bart took the plunge. The sizeable inheritance he got from his mother's estate removed any doubts he might have had about when he should start. He had enough funds available to start the business debt free. He started out slowly, and gradually built his business by expanding the number of supermarkets and small stores willing to sell his buns. Bart's Bakers Delight buns were soon very popular among Jamaicans living in Miami. 1 BUS312 Fall 2020 Bart had successfully applied for tax exemption status under the state government's Small Business Start-Up Program. Bart was allowed to operate his business free of income taxes for the first 10 years. One of the requirements of the tax-exempt status was that Bart must maintain a workforce of at least six people. That had never been concern for Bart when things were going better in the business. Since adding Light n Fruity buns, he had been feeling constrained by the recent downturn in the amount of cash being generated by the business. Bart was concerned that he may have to stop his Light 'n Fruity product line and lay off some workers. The use covenant of the land on which the bakery was located restricted Bakers Delight's operating hours from 9 a.m. to 5 p.m. Mondays through Fridays. This restriction means that Bakers Delight buns are not delivered to stores on Saturdays or Sundays. Bakers Delight buns were therefore not available to customers on Sundays and Mondays since retailers purchased to meet daily customer demands to ensure that the buns were freshly baked. Bart was confident that the loss of two days' sales was worth it. He decided on this site for the business because of the low rent. Bart estimated that his rent costs would be twice the current amount for a site without operating hour restrictions. At the start of 2020. Bart expanded his offerings, adding "Light n Fruity" to "Sweet". Sweet contained only raisins, while Light In' Fruity had more raisins, as well as currants, prunes and cherries. To support the new product, Bart used an advertising campaign that he thought was very effective. He was happy with the response he had gotten so far to his newest product. He believed that Light 'n Fruity was an effective way to quickly increase total bun sales. COMPETITION Competition was fierce. Bart did not have much room to maneuver in terms of the prices he could charge for his products. There were many other brands selling the equivalent Sweet product. Bart decided to expand his products to Light 'n' Fruity because there was only one other company selling an upscale bun. Bart had learned to make buns that had a lighter, smoother texture from his mother. Using his experience in baking Sweet buns on a commercial scale, Bart was able to adapt his mother's recipe. The result was Light 'n' Fruity. Lately, the business had caused Bart some concern. While sales continued to increase, he noticed that the business was not providing as much cash as it used to. Bart had even begun to wonder if he was making a profit. He had never really paid much attention to the accounting side of things. He had always figured that if his customers were happy and he was able to match his competitors' prices, his business would succeed. Gina, his only child and a recent university graduate with an accounting major, offered to look at the operations of the company. Prior to this, Gina had not had much interest in the business. Bart had intentionally steered her interest away from his work. He wanted her to keep focused on her education. Bart, who left school after tenth grade, had instilled in his daughter the importance of an education. He was extremely proud that she was now a university graduate. 2. BUS312 Fall 2020 FINANCIAL DATA Bart expected Sweet bun sales to increase by approximately one to two percent per year for the next three years (Table 1). This is based on what Bakers Delight has experienced since the start of the business five years ago. Daily industry-wide bun sales were increasing slowly but steadily, with no seasonal trends. Gina compiled data shown in Table 2 for 2019. Table 1: Sales/Projected Demand Product Actual 2019 76,563 43,750 Projected 2021 78,250 53,500 2020 77,875 47,500 Sweet Light 'n' Fruity 2022 80,000 60,000 Table 2: 2019 Revenues and Cost Data Sales Sweet $ 3.20 per bun Light 'n' Fruity $ 3.95 per bun Materials Sweet $ 0.875 per bun Light 'n' Fruity $ 1.70 per bun Utility bill Fixed $ 3,000 Variable $ 12.00 per run time hour Transportation $ 0.15 per bun Commercial Bakery License $ 3,000 Rent $ 33,000 Depreciation $ 3.000 Insurance Office $ 5,000 Factory $ 10,000 Equipment maintenance $ 3,600 Advertising $ 40,000 Office supplies $ 1,200 Ten bakery workers $ 8.00 per hour Administrative Assistant Mike Dalton $ 19,048 Production Supervisor John Rodgers $ 26,666 Bart Johnson $ 32,000 3 BUS312 Fall 2020 EMPLOYEES Initially, Bart's job was supervising Sweet production. With the introduction of Light 'n' Fruity, Bart hired a supervisor, John Rodgers, and six new workers to facilitate its production. John's sole responsibility is overseeing the production and cleaning processes for both Sweet and Light 'n' Fruity. Bart delivered the buns to the various Miami outlets. Bart and his administrative assistant, Mike Dalton, ensured that supermarket and store shelves were adequately stocked with buns. Bart and Mike also spend a fair bit of time trying to get new outlets for the buns and maintaining good relationships with the existing outlets. Both Sweet and Light 'n' Fruity were delivered daily to outlets, Monday through Friday, assuring fresh buns to consumers. Bart, Mike and John were all full-time employees of Bakers Delight. In fact, Bart and Mike typically worked 12-hour days. They both had the additional responsibilities of ordering ingredients and supplies and the general administration of the business. The other workers were part-time. The total work force consisted of Bart, John, Mike and 10 part-time workers. The part-time workers' responsibilities were bun production, packaging, cleaning and loading the trucks for delivery. Bart's time was currently divided evenly between marketing and administration. John spent his time evenly between the two products. The bakery was open five days a week, 52 weeks a year. Bart considered his employees to be family. In 2019 Bart gave all employees a five percent raise. Employee morale was very high. There was a high level of trust in Bart as an honest, kind man. This high morale was reflected in the low worker turnover that the business experiences. Bart knew this resulted cost savings from t having to train new workers. Most had been with the business since its inception. Workers had left primarily because they could not get more work hours with Bakers Delight. PRODUCTION PROCESS For Sweet, the process is as follows. Brown sugar, water, margarine, salt, cinnamon, nutmeg, cloves and raisins are first boiled in a saucepan. This process takes 30 minutes. The mixture is then cooled for 15 minutes. The cooled mixture is added to a mixture of flour and baking soda and placed in the oven and baked for one hour. The oven self-cleans for another 15 minutes. During this time, packaging, loading, and clean up take place. Each run produces 150 buns and is manned by four workers. Two or three runs occur per day. For Light 'n' Fruity, the yeast is creamed with sugar, and warm milk is then added. The mixture is added to the flour and stirs to make smooth. After allowing the yeast to rise for 45 minutes, margarine is added. After another 45 minutes, all the other ingredients are added and mixed until smooth. The mixture is then placed in the oven and baked for one hour and 45 minutes. Oven self-cleaning takes another 15 minutes. Packaging, loading, and clean up take about 15 minutes and occur during oven self-cleaning. Each run makes 200 buns and requires six workers. Currently one run of Light 'n' Fruity takes place per day. Because each product has its own unique set up, one oven is dedicated to Sweet, and the other to Light 'n' Fruity. Run time for the first batches of Sweet and Light n Fruity are two hours and three and a half hours, respectively. After the first batch, the time falls to one and a quarter hours for subsequent Sweet batches and two hours for subsequent Light n Fruity batches. The reduction in production BUS312 Fall 2020 time occurs because workers could mix the ingredients for the next batch while the first (earlier) batch is baked in the oven. Production begins at 9 a.m. each day. Three p.m. is the latest the truck can be loaded for delivery to outlets throughout the Miami area for sale the next day. Buns are delivered daily to each outlet to ensure that they are fresh. Bakery stores in the Miami area require delivery by 4 p.m. each evening so they are able to shelve the items for the next business day. NEW EQUIPMENT Bart has another decision to make. New equipment, the "Baker," is now available that would allow him to reduce the number of workers needed for baking both products. The entire process could now be fully automated. The supervisor could do all the baking for both Sweet and Light 'n' Fruity if Bart leased one Baker for Sweet and another for Light 'n' Fruity. There would no longer be the need for the 10 part-time workers. The company selling the Baker would be responsible for maintenance. Lease payments for each Baker would be $36,000 per year for the next five years, paid in 12 equal payments at the end of each month. Baking times would remain the same for both products. SPECIAL OFFERS Bart was approached with several offers for Light n Fruity in 2019 (see Table 3). He felt such offers were attempts to take advantage of the fact that he was uneducated and perceived in the community as not being business savvy. As part of her data collection, Gina asked Bart for information on these offers. Bart had information on only approximately 20 percent of the offers. However, he was confident that this was a good representation of the special orders he had received for the Light 'n' Fruity buns (Table 3). Table 3: Special Order Requests for 2019 Special Order # Offer Price per Bun Number of Buns Total Offer Price 1 2 3 4 5 6 7 8 9 10 $ $ $ $ $ $ $ $ $ $ 3.95 4.15 4.10 4.00 4.00 4.10 2.00 1.88 1.75 1.50 200 500 900 1000 150 190 175 180 190 200 $ 790.00 $ 2,075.00 $ 3,690.00 $ 4,000.00 $ 600.00 $ 779.00 $ 350.00 $ 338.40 $ 332.50 $ 300.00 5 BUS312 Fall 2020 A new company in Fort Lauderdale, Fresh Bakery Company, has recently approached Bart about an initial two-year contract to buy at least 6,000 Light 'n' Fruity buns per year for $2.50 each. The company supplies stores in Miami and Fort Lauderdale with baked goods and operated its own retail bakery store in Fort Lauderdale. Fort Lauderdale is approximately one hour's drive from Miami. Fresh Bakery Company transports baked goods to Miami three times a month and believes it could make these trips more profitable by taking back 500 of Bart's Light 'n' Fruity buns for sale in its Fort Lauderdale store monthly. The company believes that it is only a matter of time before it begins making more bakery deliveries to Miami. Each month, two pick ups of 200 buns and a third pick up of 100 buns would be made at 4:30 p.m. on three week day afternoons. Fresh Bakery Company plans to sell the buns the next day in its own store. After two years, the companies would renegotiate the contract. Bart would normally have dismissed the offer since it fell short of the price he could get from his normal distributors. However, he has decided to let Gina have a look at the numbers before making a decision. KEY DECISIONS Bart. Thanks, Gina, for agreeing to look at the business for me. I'd like to know if the business is profitable. If not, what can I do to make it profitable? Should I accept special offers from the caterers and the Fresh Bakery Company? My lease at the current location is up at the end of 2019. Should I sign another five-year contract for the present location, or find somewhere else? I've also been hearing rumors recently that the workers feel that John is overpaid. Can you have a look at that issue as well? I don't feel equipped to make these decisions. The business is getting too complicated for me to handle. 6 BUS312 Fall 2020 REQUIREMENTS 1. Prepare a 2019 income statement using the variable costing approach and showing contribution margin by product line and total income. Discuss the 2019 operating results and highlight potential problems. 2. What is Bakers Delight's current maximum production capacity? Discuss at least two reasons for why this figure is relevant for future planning. 3. Based on the current operating data, estimate the 2019 product margins and total income if Bakers Delight operated 7 days a week. Discuss your analysis and any assumptions made. Should Bart remain at the current location? Explain. 4. When should a business accept special orders? What are the potential benefits of Bakers Delight accepting Light In' Fruity special orders? Discuss at least two potential benefits. 5. Which Light In' Fruity special orders in Table 3 should have been accepted? Perform a special order analysis and discuss your analysis and recommendation. 6. Should Bart accept Fresh Bakery Company's offer? Perform a special order analysis and discuss your analysis and recommendation. 7. Should Bart lease the new Baker" machines? Perform a relevant analysis and discuss your analysis and recommendation. 8. Is there anything else Bart can do to make the business more profitable? Discuss at least three ideas. Make sure to provide detailed recommendations i.e., discussion of actions and reasoning) 7 BUS312 Fall 2020 Team Report Submission Guideline: 1. You may work on this case by yourself or in a group of 2 students in total. 2. Cover page should contain the following information: case title, team members, course name, semester, and submission date. 3. You must use Excel or other tools to analyze the data in order to do all calculations and answer all questions above. Supporting computations must speak for themselves. Refer to these calculations when discussing numerical results. Make sure to present your computations clearly. Lack of clarity could lower points. I encourage you to use data visualization (Charts, Pivot Tables, Dashboards) to present your results. Be creative! 4. Your report should be typed in MS Word, but you may copy and insert tables from your Excel file when necessary. Answer the questions in the order they are presented in the case material. Organize your answers in paragraphs, use subtitles if necessary, and avoid using bullets. The report should look like a business report that you would present to your boss, rather than a list of answers. 5 Check for typos, grammatical errors, and unnecessary repetitions. 6. Only one submission per team is required. 7. Submit the electronic copy of both your report in Word and your Excel analysis via Moodle by 5:00 p.m. on October 28, 2020. DO NOT DISCUSS OR SHARE YOUR WORK WITH ANYONE OTHER THAN YOUR GROUP MEMBERS. Make sure that you work together on the case. BUS312 Fall 2020 Grading Guidelines: Points available Your points 10 5 5 5 10 5 5 5 Item information Team Report: Answer to Q1 2019 Income statement Discussion of the 2019 operating results and potential problems Answer to Q2 Current maximum production capacity (computations) Discussion of at least two reasons of the importance of this figure Answer to Q3 Estimate of the 2019 product margins and total income if operating 7 days a week Discussion of results, assumptions, and recommendation Answer to 24 Discussion of rules for accepting special orders Discussion of at least two potential benefits Answer to Q5 Special order analysis (computations) Discussion of results and recommendation Answer to Q6 Special order analysis (computations) Discussion of results and recommendation Answer to Q7 Relevant analysis for making purchase decision (computations) Discussion of results and recommendation Answer to Q8 Discussion of at least three ideas to make the business more profitable Report is free of typos, grammatical errors, and unnecessary repetitions. Report looks professional (i.e.,page-numbered nicely printed, etc.). TOTAL 5 5 5 5 5 5 10 5 5 100 Note: Effective written communication determines the points awarded on discussion questions. Be sure to provide thoughtful discussion and recommendations. When answering such questions, organize your answers in paragraphs, use subtitles, and avoid using bullets. 9 BUS312 Fall 2020 CASE 2 BAKERS DELIGHT INTRODUCTION Bart Johnson relaxed in his easy chair listening to the waves with his daughter Gina. He loved Jamaican beaches. He loved the smell of the salt and the sound of the seagulls. The evening sun was casting its bright orange light across the skies for just a few more minutes before it would disappear. Bart's trip to Jamaica allowed him to get away from his bun business and spend some time with his daughter in the beloved country of his birth. It was now January 2020. Bart: Gina, I'm becoming quite concerned about my bun business. Gina: Why Dad, what's the problem? Bart: The business is not generating the cash it used to. I think I made a mistake last year when I added the Light n Fruity buns to the Sweet buns I had been making in the past. I had hoped that adding Light n Fruity would have allowed me to expand the business more quickly since there is only one other company selling an upscale bun. What do I do now? I don't think the business is profitable any more. I hired all these new workers when I started making Light n Fruity! Gina: Perhaps I can help. I'll have a look at the operations, and maybe I can make some suggestions to make the business more profitable. Ten short years ago, Bart had migrated to the U.S. and settled in Miami, Florida. At last he had reached the land of opportunity! He was soon holding down two jobs and working about 60 hours per week. This was so different from Jamaica, where jobs were so difficult to find. Bart had long dreamed of owning his own business and being his own boss. As his savings took on healthy proportions, he began to seriously consider his options. In Miami, Bart met many people from Jamaica and other Caribbean islands. One of the things they frequently spoke about was their longing for the different foods from the Caribbean. In Jamaica, Bart had worked for five years with a bakery making Jamaican buns. Although there were already Jamaican bun bakeries operating in Miami Bart felt that there was plenty of room for one more. COMPANY BACKGROUND Five years ago Bart took the plunge. The sizeable inheritance he got from his mother's estate removed any doubts he might have had about when he should start. He had enough funds available to start the business debt free. He started out slowly, and gradually built his business by expanding the number of supermarkets and small stores willing to sell his buns. Bart's Bakers Delight buns were soon very popular among Jamaicans living in Miami. 1 BUS312 Fall 2020 Bart had successfully applied for tax exemption status under the state government's Small Business Start-Up Program. Bart was allowed to operate his business free of income taxes for the first 10 years. One of the requirements of the tax-exempt status was that Bart must maintain a workforce of at least six people. That had never been concern for Bart when things were going better in the business. Since adding Light n Fruity buns, he had been feeling constrained by the recent downturn in the amount of cash being generated by the business. Bart was concerned that he may have to stop his Light 'n Fruity product line and lay off some workers. The use covenant of the land on which the bakery was located restricted Bakers Delight's operating hours from 9 a.m. to 5 p.m. Mondays through Fridays. This restriction means that Bakers Delight buns are not delivered to stores on Saturdays or Sundays. Bakers Delight buns were therefore not available to customers on Sundays and Mondays since retailers purchased to meet daily customer demands to ensure that the buns were freshly baked. Bart was confident that the loss of two days' sales was worth it. He decided on this site for the business because of the low rent. Bart estimated that his rent costs would be twice the current amount for a site without operating hour restrictions. At the start of 2020. Bart expanded his offerings, adding "Light n Fruity" to "Sweet". Sweet contained only raisins, while Light In' Fruity had more raisins, as well as currants, prunes and cherries. To support the new product, Bart used an advertising campaign that he thought was very effective. He was happy with the response he had gotten so far to his newest product. He believed that Light 'n Fruity was an effective way to quickly increase total bun sales. COMPETITION Competition was fierce. Bart did not have much room to maneuver in terms of the prices he could charge for his products. There were many other brands selling the equivalent Sweet product. Bart decided to expand his products to Light 'n' Fruity because there was only one other company selling an upscale bun. Bart had learned to make buns that had a lighter, smoother texture from his mother. Using his experience in baking Sweet buns on a commercial scale, Bart was able to adapt his mother's recipe. The result was Light 'n' Fruity. Lately, the business had caused Bart some concern. While sales continued to increase, he noticed that the business was not providing as much cash as it used to. Bart had even begun to wonder if he was making a profit. He had never really paid much attention to the accounting side of things. He had always figured that if his customers were happy and he was able to match his competitors' prices, his business would succeed. Gina, his only child and a recent university graduate with an accounting major, offered to look at the operations of the company. Prior to this, Gina had not had much interest in the business. Bart had intentionally steered her interest away from his work. He wanted her to keep focused on her education. Bart, who left school after tenth grade, had instilled in his daughter the importance of an education. He was extremely proud that she was now a university graduate. 2. BUS312 Fall 2020 FINANCIAL DATA Bart expected Sweet bun sales to increase by approximately one to two percent per year for the next three years (Table 1). This is based on what Bakers Delight has experienced since the start of the business five years ago. Daily industry-wide bun sales were increasing slowly but steadily, with no seasonal trends. Gina compiled data shown in Table 2 for 2019. Table 1: Sales/Projected Demand Product Actual 2019 76,563 43,750 Projected 2021 78,250 53,500 2020 77,875 47,500 Sweet Light 'n' Fruity 2022 80,000 60,000 Table 2: 2019 Revenues and Cost Data Sales Sweet $ 3.20 per bun Light 'n' Fruity $ 3.95 per bun Materials Sweet $ 0.875 per bun Light 'n' Fruity $ 1.70 per bun Utility bill Fixed $ 3,000 Variable $ 12.00 per run time hour Transportation $ 0.15 per bun Commercial Bakery License $ 3,000 Rent $ 33,000 Depreciation $ 3.000 Insurance Office $ 5,000 Factory $ 10,000 Equipment maintenance $ 3,600 Advertising $ 40,000 Office supplies $ 1,200 Ten bakery workers $ 8.00 per hour Administrative Assistant Mike Dalton $ 19,048 Production Supervisor John Rodgers $ 26,666 Bart Johnson $ 32,000 3 BUS312 Fall 2020 EMPLOYEES Initially, Bart's job was supervising Sweet production. With the introduction of Light 'n' Fruity, Bart hired a supervisor, John Rodgers, and six new workers to facilitate its production. John's sole responsibility is overseeing the production and cleaning processes for both Sweet and Light 'n' Fruity. Bart delivered the buns to the various Miami outlets. Bart and his administrative assistant, Mike Dalton, ensured that supermarket and store shelves were adequately stocked with buns. Bart and Mike also spend a fair bit of time trying to get new outlets for the buns and maintaining good relationships with the existing outlets. Both Sweet and Light 'n' Fruity were delivered daily to outlets, Monday through Friday, assuring fresh buns to consumers. Bart, Mike and John were all full-time employees of Bakers Delight. In fact, Bart and Mike typically worked 12-hour days. They both had the additional responsibilities of ordering ingredients and supplies and the general administration of the business. The other workers were part-time. The total work force consisted of Bart, John, Mike and 10 part-time workers. The part-time workers' responsibilities were bun production, packaging, cleaning and loading the trucks for delivery. Bart's time was currently divided evenly between marketing and administration. John spent his time evenly between the two products. The bakery was open five days a week, 52 weeks a year. Bart considered his employees to be family. In 2019 Bart gave all employees a five percent raise. Employee morale was very high. There was a high level of trust in Bart as an honest, kind man. This high morale was reflected in the low worker turnover that the business experiences. Bart knew this resulted cost savings from t having to train new workers. Most had been with the business since its inception. Workers had left primarily because they could not get more work hours with Bakers Delight. PRODUCTION PROCESS For Sweet, the process is as follows. Brown sugar, water, margarine, salt, cinnamon, nutmeg, cloves and raisins are first boiled in a saucepan. This process takes 30 minutes. The mixture is then cooled for 15 minutes. The cooled mixture is added to a mixture of flour and baking soda and placed in the oven and baked for one hour. The oven self-cleans for another 15 minutes. During this time, packaging, loading, and clean up take place. Each run produces 150 buns and is manned by four workers. Two or three runs occur per day. For Light 'n' Fruity, the yeast is creamed with sugar, and warm milk is then added. The mixture is added to the flour and stirs to make smooth. After allowing the yeast to rise for 45 minutes, margarine is added. After another 45 minutes, all the other ingredients are added and mixed until smooth. The mixture is then placed in the oven and baked for one hour and 45 minutes. Oven self-cleaning takes another 15 minutes. Packaging, loading, and clean up take about 15 minutes and occur during oven self-cleaning. Each run makes 200 buns and requires six workers. Currently one run of Light 'n' Fruity takes place per day. Because each product has its own unique set up, one oven is dedicated to Sweet, and the other to Light 'n' Fruity. Run time for the first batches of Sweet and Light n Fruity are two hours and three and a half hours, respectively. After the first batch, the time falls to one and a quarter hours for subsequent Sweet batches and two hours for subsequent Light n Fruity batches. The reduction in production BUS312 Fall 2020 time occurs because workers could mix the ingredients for the next batch while the first (earlier) batch is baked in the oven. Production begins at 9 a.m. each day. Three p.m. is the latest the truck can be loaded for delivery to outlets throughout the Miami area for sale the next day. Buns are delivered daily to each outlet to ensure that they are fresh. Bakery stores in the Miami area require delivery by 4 p.m. each evening so they are able to shelve the items for the next business day. NEW EQUIPMENT Bart has another decision to make. New equipment, the "Baker," is now available that would allow him to reduce the number of workers needed for baking both products. The entire process could now be fully automated. The supervisor could do all the baking for both Sweet and Light 'n' Fruity if Bart leased one Baker for Sweet and another for Light 'n' Fruity. There would no longer be the need for the 10 part-time workers. The company selling the Baker would be responsible for maintenance. Lease payments for each Baker would be $36,000 per year for the next five years, paid in 12 equal payments at the end of each month. Baking times would remain the same for both products. SPECIAL OFFERS Bart was approached with several offers for Light n Fruity in 2019 (see Table 3). He felt such offers were attempts to take advantage of the fact that he was uneducated and perceived in the community as not being business savvy. As part of her data collection, Gina asked Bart for information on these offers. Bart had information on only approximately 20 percent of the offers. However, he was confident that this was a good representation of the special orders he had received for the Light 'n' Fruity buns (Table 3). Table 3: Special Order Requests for 2019 Special Order # Offer Price per Bun Number of Buns Total Offer Price 1 2 3 4 5 6 7 8 9 10 $ $ $ $ $ $ $ $ $ $ 3.95 4.15 4.10 4.00 4.00 4.10 2.00 1.88 1.75 1.50 200 500 900 1000 150 190 175 180 190 200 $ 790.00 $ 2,075.00 $ 3,690.00 $ 4,000.00 $ 600.00 $ 779.00 $ 350.00 $ 338.40 $ 332.50 $ 300.00 5 BUS312 Fall 2020 A new company in Fort Lauderdale, Fresh Bakery Company, has recently approached Bart about an initial two-year contract to buy at least 6,000 Light 'n' Fruity buns per year for $2.50 each. The company supplies stores in Miami and Fort Lauderdale with baked goods and operated its own retail bakery store in Fort Lauderdale. Fort Lauderdale is approximately one hour's drive from Miami. Fresh Bakery Company transports baked goods to Miami three times a month and believes it could make these trips more profitable by taking back 500 of Bart's Light 'n' Fruity buns for sale in its Fort Lauderdale store monthly. The company believes that it is only a matter of time before it begins making more bakery deliveries to Miami. Each month, two pick ups of 200 buns and a third pick up of 100 buns would be made at 4:30 p.m. on three week day afternoons. Fresh Bakery Company plans to sell the buns the next day in its own store. After two years, the companies would renegotiate the contract. Bart would normally have dismissed the offer since it fell short of the price he could get from his normal distributors. However, he has decided to let Gina have a look at the numbers before making a decision. KEY DECISIONS Bart. Thanks, Gina, for agreeing to look at the business for me. I'd like to know if the business is profitable. If not, what can I do to make it profitable? Should I accept special offers from the caterers and the Fresh Bakery Company? My lease at the current location is up at the end of 2019. Should I sign another five-year contract for the present location, or find somewhere else? I've also been hearing rumors recently that the workers feel that John is overpaid. Can you have a look at that issue as well? I don't feel equipped to make these decisions. The business is getting too complicated for me to handle. 6 BUS312 Fall 2020 REQUIREMENTS 1. Prepare a 2019 income statement using the variable costing approach and showing contribution margin by product line and total income. Discuss the 2019 operating results and highlight potential problems. 2. What is Bakers Delight's current maximum production capacity? Discuss at least two reasons for why this figure is relevant for future planning. 3. Based on the current operating data, estimate the 2019 product margins and total income if Bakers Delight operated 7 days a week. Discuss your analysis and any assumptions made. Should Bart remain at the current location? Explain. 4. When should a business accept special orders? What are the potential benefits of Bakers Delight accepting Light In' Fruity special orders? Discuss at least two potential benefits. 5. Which Light In' Fruity special orders in Table 3 should have been accepted? Perform a special order analysis and discuss your analysis and recommendation. 6. Should Bart accept Fresh Bakery Company's offer? Perform a special order analysis and discuss your analysis and recommendation. 7. Should Bart lease the new Baker" machines? Perform a relevant analysis and discuss your analysis and recommendation. 8. Is there anything else Bart can do to make the business more profitable? Discuss at least three ideas. Make sure to provide detailed recommendations i.e., discussion of actions and reasoning) 7 BUS312 Fall 2020 Team Report Submission Guideline: 1. You may work on this case by yourself or in a group of 2 students in total. 2. Cover page should contain the following information: case title, team members, course name, semester, and submission date. 3. You must use Excel or other tools to analyze the data in order to do all calculations and answer all questions above. Supporting computations must speak for themselves. Refer to these calculations when discussing numerical results. Make sure to present your computations clearly. Lack of clarity could lower points. I encourage you to use data visualization (Charts, Pivot Tables, Dashboards) to present your results. Be creative! 4. Your report should be typed in MS Word, but you may copy and insert tables from your Excel file when necessary. Answer the questions in the order they are presented in the case material. Organize your answers in paragraphs, use subtitles if necessary, and avoid using bullets. The report should look like a business report that you would present to your boss, rather than a list of answers. 5 Check for typos, grammatical errors, and unnecessary repetitions. 6. Only one submission per team is required. 7. Submit the electronic copy of both your report in Word and your Excel analysis via Moodle by 5:00 p.m. on October 28, 2020. DO NOT DISCUSS OR SHARE YOUR WORK WITH ANYONE OTHER THAN YOUR GROUP MEMBERS. Make sure that you work together on the case. BUS312 Fall 2020 Grading Guidelines: Points available Your points 10 5 5 5 10 5 5 5 Item information Team Report: Answer to Q1 2019 Income statement Discussion of the 2019 operating results and potential problems Answer to Q2 Current maximum production capacity (computations) Discussion of at least two reasons of the importance of this figure Answer to Q3 Estimate of the 2019 product margins and total income if operating 7 days a week Discussion of results, assumptions, and recommendation Answer to 24 Discussion of rules for accepting special orders Discussion of at least two potential benefits Answer to Q5 Special order analysis (computations) Discussion of results and recommendation Answer to Q6 Special order analysis (computations) Discussion of results and recommendation Answer to Q7 Relevant analysis for making purchase decision (computations) Discussion of results and recommendation Answer to Q8 Discussion of at least three ideas to make the business more profitable Report is free of typos, grammatical errors, and unnecessary repetitions. Report looks professional (i.e.,page-numbered nicely printed, etc.). TOTAL 5 5 5 5 5 5 10 5 5 100 Note: Effective written communication determines the points awarded on discussion questions. Be sure to provide thoughtful discussion and recommendations. When answering such questions, organize your answers in paragraphs, use subtitles, and avoid using bullets. 9