Caked Up! is a small, local bakery in Mississippi owned and operated by cake designer LisaSmith. Caked Up! serves cakes, cupcakes, house-made ice cream, coffee, and an assortment of baked goods, including cake pops. In addition, they offer custom cake orders for weddings, birthdays, and other special occasions.

Lisa grew up loving to bake but desired to make treats look as good as they tasted. In 2007, she took her first cake decorating class and realized that she had a unique talent for cake decorating. Over the next few years, Lisaperfected her baking skills making birthday and wedding cakes for family and friends. During that time, she also married and started a family. As word of mouth stimulated demand for her custom cakes, she knew that she needed to find a way to open a storefront that allowed her the flexibility to still be with her three small children. In March of 2014, Lisa opened the Caked Up! retail storefront. Lisa's passion is business and her niche is her bakery. Lisawould like to do more managing and less baking and therefore is looking for a way to train employees to create products that will continue to build her business but not tie her to the kitchen working on customized cakes. Cupcakes and coffee are both very popular due to the millennial's desire for customization and "grab and go" options. Popular television shows like Cupcake Wars, Two Broke Girls and Fixer Upper highlight cupcakes and result in a trend for this market.

A recent consultation with business professionals from accounting, marketing, and management resulted in the recommendation that Lisaopens a food truck with her two most popular products - cupcakes and coffee. She knows the market price for cupcakes and coffee but needs to know if and how much her profit will be if she follows the advice of her consultant. Lisacurrently has $5,000 of retained earnings from the bakery to invest in this venture but may need to borrow the additional capital at an annual rate of 4.5% through a small business initiative in her state of residence.

Caked Up! is in a rural part of the southeastern United States in a town with a population of approximately 20,000. There is also a university located down the street from Caked Up! but not within walking distance. The three largest employers in town are a Tribal Nation, a large regional bank and their corporate headquarters and a distribution center for a well-known retailer. In addition, the Tribal Nation has a large independent construction company located on-site that will be there for approximately three years. A food truck park has recently opened in town and currently does not have dessert or coffee selections. There is a larger town within 20 miles that has just opened a food truck park, as well.

The food truck industry is one of the best performing segments in the broader foodservice sector with annual growth from 2014-2019 of 6.8% (IBISWorld, 2019). Lisahas found a plethora of information online with advice and lessons learned from opening a food truck. She knows she needs to add this to her current business plan, and she has reached out to the Small Business Development Center (SBDC) for advice. They recommend she start with a three-year financial plan which includes amortization schedules for the loan and return on investment calculations. They also recommend she conduct a SWOT analysis and use Porter's Five Forces model to analyze the industry's attractiveness and likely profitability. With this information, Lisacan complete the business plan for her food truck according to the guidelines from the Small Business Development Center. With a complete business plan, Lisawill have the following:

Executive Summary Company and Financing Summary

Products and Service Overview Strategic Analysis with current research

Marketing plan Personnel Plan

3 Year Advanced Financial Plan

Expanded Financial Plan with Monthly Financials

Loan Amortization and ROI Tools

PowerPoint Presentation for investors

Financial Analysis

The consulting firm recommends that Lisaconduct a breakeven analysis for the coffee and cupcake venture. Lisaremembers from her managerial accounting course that breakeven is calculated for a product mix with the use of total fixed costs and contribution margin for each item.

Lisa's current employees can make the cupcakes at her shop but she needs to hire personnel to run the food truck and work as baristas. She plans to move from location to location and operate Monday-Saturday from 6:00 a.m. to 3:00 p.m. with just two workers assigned to the food truck at a time. The employees will make $12 per hour and the payroll taxes will be 10% of gross pay. Her current staff has the capacity to bake and decorate the cupcakes in the shop. Lisahas estimated her direct material costs to be $0.25 per cupcake, $0.50 per cup of coffee and $1.00 per cup of specialized coffee such as lattes.

In addition to the direct materials for the cupcakes and coffee, Lisa will have to cover the costs of the food truck. Because she does not need a full kitchen in the food truck, she has found a truck she can lease for $700 monthly. Leasing is attractive since the insurance on the food truck would cost around $125 monthly. She also has found a food truck she could buy for $25,000 and is considering which option would be best for her financially. She has done some research and found that the equipment she needs for coffee and specialized coffee will be approximately $8,000 which includes an espresso machine, espresso coffee grinder, commercial coffee grinder, gourmet airport brewer, commercial blender and an under-counter refrigerator.

She estimates that the parking fee for the food truck will be 10% of sales which would include access to the food parks in both her local town and the town 20 miles south. The other locations in town charge $50 per day to park the food truck. Lisaexpects to spend Fridays and Saturdays in the food truck park and move to different locations on Monday-Thursday. The previous owner of the food truck indicated that he spent $50 daily on fuel for the generator.

Based on sales at the bakery, Lisaestimates her sales mix to be 50% cupcakes, 15% coffee and 35% specialized coffee. A local marketing company's research estimates her sales market to be around 100 customers per day buying just coffee and 50 per day buying both a cupcake and a cup of coffee. Lisais curious about her margin of safety if she estimates low and assumes just 100 customers per day with each customer buying a cupcake and a drink. The research firm also indicated that based on local prices she could charge $2.50 per cupcake, $2.00 per cup of coffee and $4.00 per cup of specialized coffee. They also recommended she invest 20% of her sales in advertising in the first quarter of the year and then 10% thereafter.

The Small Business Development Center is anxious to help Lisa with her business venture. They are expecting Lisa within the next week with her financials in contribution margin statement format with breakeven, the margin of safety and degree of operating leverage as well as an ROI analysis, SWOT analysis, and Porter's Five Forces model ready to present. In addition, the owner of the food truck is anxiously waiting to hear back from Lisaas he has other potential customers interested in leasing the food truck.

1. Would like to see a three-year financial plan with a contribution margin income statement.

2. Calculate the breakeven analysis, margin of safety analysis based on market projections, degree of operating leverage, and a return on investment. What conclusions can be drawn about the risk and return of the food truck venture?

3.I would to see a buy or lease analysis for the food truck including an amortization table. Which option do you think Lisashould choose if she moves forward with the food truck venture? please explain so I can understand clearly