Classic Coffee Company Best friends, Nathan and Cody, decided to start their own business which would bring great coffee from all over the world to their local community. Together they have formed Classic Coffee Company, or CCC (assume their coffee shop is located a few miles from our college campus). Nathan is selecting and making the coffee they serve. Cody manages the front and back office; selling coffee to customers, paying employees, and running ads for the coffee shop. Last year, the company sold 45,000 units and had the below sales and cost figures. Sales Variable Costs Contribution Margin Fixed Costs Income Before Taxes Income Tax Net Income $135,000.00 $ 40,500.00 $ 94,500.00 $ 49.980.00 $ 44,520.00 $ 13,356.00 $ 31,164.00 The team have been in business for a year. With competition rising in the coffee industry, they know that another challenging and competitive year lies ahead of them. They are considering two alternatives and have hired you to help them make some important business decisions. order to receive full credit 1.) Compute the company's contribution margin under the 2 proposed scenarios (Alternative 1 - Bakery and Alternative 2 - Drive-thru). Compute the contribution margin both in total dollars and dollar per unit. 2.) Compute the company's contribution margin ratio under all both scenarios. (Note: DO NOT round the CMR for accurate calculations in the following questions) You may find it easier to use formulas in excel as it will use the entire figure in the formula calculation. 3.) Compute the break-even point both in units and in sales dollars under both alternatives. 4.) If the company wishes to generate target operating income of $80,000 (which after-tax would be $56,000), what is the amount of sales that needs to be generated? How many sales units will then need to be served? Prepare a contribution margin (CVP) Income Statement for this step and verify that your after-tax net income in fact equals $56,000 for both three scenarios. 5.) Assume that the company expects customer sales to decline by 20% next year. There will be no change in sales prices. Prepare forecasted financial results for next year following the format of the contribution margin (CVP) income statement for each of the three scenarios (assume a 30% tax rate). 6.) Assume that the company expects customer sales to increase by 20% next year. There will be no change in sales prices. Prepare forecasted financial results for next year following the format of the contribution margin (CVP) income statement for each of the three scenarios (assume a 30% tax rate). 7.) Compute the Profit Margin and Return on Assets for both alternatives assuming average total assets are $300,000 for bakery and $400,000 total assets for the drive-thru. Industry averages are 20% profit margin and 15% ROA Classic Coffee Company Alternative 1- Bakery Facing stiff competition from other coffee and beverage shops, Classic Coffee Company (CCC) is considering expanding its products to include bakery items. CCC would now experience higher average sales amounts per customer since beverage sales may be accompanied with food sales. This would, however, increase the company's variable costs since it would need to purchase the food items from outside vendors. The following data pertains to adding the bakery option: Total sales in the number of units would increase 25% with the added bakery option. The average sales price per unit would increase from the current $3.00 to $5.00 when food sales are added to the coffee shop. The variable cost per unit would increase to $2.50 per unit to account for the added cost of bakery items. There would be an increase in fixed costs of $25,000 for advertising to inform the public of this change. Alternative 2 - Drive Thru CCC is thinking about having a drive-thru installed. Having this amenity would help the coffee shop increase its customer base, allowing them to reach a greater number of customers. This added convenience would permit CCC to slightly increase the price of its average coffee and would not increase the per unit variable costs for the company. The following data pertains to adding the drive-thru option: This alternative is exclusive of alternative 1 Total sales in the number of units would increase by 140% from last year. The construction of the drive-thru would increase fixed costs by $129,420 - which represents one-time construction and installation costs. This alternative would allow CCC to increase their average sales price to $3.20 a cup of coffee and their variable cost per unit would remain the same at $0.90 per unit Alternative 1 - Bakery Alternative 2 - Drive-Thru ALT 1 ALT 2 1a) Incorrect Incorrect 0 0 Contribution Margin - Total 4 pts Show your work here: Show your work here: 1b) Incorrect Incorrect 0 0 Contribution Margin - Per Unit 4 pts Show your work here: Show your work here: 2) Incorrect Incorrect 0 0 Contribution Margin Ratio: 4 pts Round % to 3 decimal places Show your work here: Show your work here: ) Incorrect Incorrect 0 0 Break-Even Point in UNITS: 4 pts Show your work here: Show your work here: Alternative 1 - Bakery Alternative 2 - Drive-Thru ALT1 ALT 1 ALT 2 3b) Incorrect Incorrect 0 0 Break-Even Point in Sales DOLLARS: 4 pts Show your work here: Show your work here: 4a) Incorrect Incorrect 0 0 Show your work here: Show your work here: Sales Dollars needed to earn target income of $80,000 ($56,000 net) 2 pts **Round to nearest dollar (NO DECIMALS) 4b) Incorrect Incorrect 0 0 Show your work here: Show your work here: Sales UNITS needed to earn target income of $80,000 ($56,000 net) 2 pts **Round to nearest whole unit (no decimals) Alternative 1 - Bakery Alternative 2 - Drive-Thru ALT 1 ALT 2 4c) CVP Income Statement to prove income: 4pts Sales Incorrect Incorrect 0 0 Variable Costs Incorrect Incorrect 0 0 Contribution Margin Incorrect Incorrect 0 Fixed Costs Incorrect Incorrect 0 0 Incorrect Incorrect 0 0 Operating Income Income Taxes Incorrect Incorrect 0 0 Net Income Incorrect Incorrect 0 0 5) CVP Income Statement - Sales decline 20% 6pts Sales Incorrect Incorrect 0 Incorrect Incorrect 0 0 Variable Costs Contribution Margin Incorrect Incorrect 0 0 Fixed Costs 0 0 Incorrect Incorrect Incorrect Incorrect 0 0 Operating Income Income Taxes Incorrect Incorrect 0 0 Net Income Incorrect Incorrect 0 0 Alternative 1 - Bakery Alternative 2 - Drive-Thru ALT 1 ALT 2 6) CVP Income Statement - Sales increase 20% 6pts Sales Incorrect Incorrect 0 0 Variable Costs Incorrect Incorrect 0 0 Incorrect Incorrect 0 0 Contribution Margin Fixed Costs Incorrect Incorrect 0 0 Incorrect Incorrect 0 0 Operating Income Income Taxes Incorrect Incorrect 0 0 Net Income Incorrect Incorrect 0 0 7a) Incorrect Incorrect 0 0 Show your work here: Show your work here: Profit Margin 2 pts Round percentage to 2 decimal places i.e. 12.15% You must put % sign 7a) Incorrect Incorrect 0 0 Show your work here: Show your work here: Return on Assets 2 pts Round percentage to 2 decimal places i.e. 12.15% You must put % sign