Daisy, a friend who is an excellent baker, has decided to open a cupcake store to sell gourmet cupcakes.Daisy has asked you if you will be willing to loan the company $50,000 at an interest rate of 4% that will be paid back over 5 years.You will analyze the business to determine if you will loan Daisy the money. The business is scheduled to launch on January 1, 2019.Daisy has provided you with the following cost information.

Cost information:

1Cost of goods sold:

a.Ingredients are .30 per cupcake

b.Cupcake Cups are .01 per cupcake

2Daisy has found a fully equipped commercial kitchen near downtown with a store front that will be rented for $1,000 per month.

3Utilities will be $125 per month.

4On average one person can make, bake, and decorate 36 cupcakes per hour. Bakers are paid $18.00 per hour.

5A worker will be needed for the store front to sell the cupcakes.Daisy plans to open the store 7 days per week from 11:00 AM until 7:00 PM.Sales people will be paid $9.00 per hour.

6Business insurance is purchased at a cost of $750 per year.

7Advertising costs are expected to be $3,600 per year.

Requirements:

Using separate tabs in a spreadsheet, provide your answers for the following.

1What and how much are the variable costs?Present each item in cost per cupcake basis

2What and how much are the fixed costs?Present each item in total cost per year

3Write out the annual cost formula in Y = a + bX format

4You want to help Daisy set a selling price for the cupcakes.Research who the competition is and at what price they are selling gourmet cupcakes. Provide the detailed information for at least 3 competitors.Set a target price for Daisy's cupcakes so that the business is competitive and the costs will be covered with a reasonable profit based on the expectation that 30,000 cupcakes will be sold annually

5Develop a price using cost-based pricing assuming that Daisy expects to sell 30,000 cupcakes the first year with a 15% profit

For the following questions use the anticipated selling price of $2.75 per cupcake

6Calculate contribution margin per cupcake and contribution margin ratio

7Calculate how many cupcakes need to be sold in order to break-even.Calculate how much sales in dollars are needed to break-even

8Have a cost/volume/profit graph

9Based on the expected production of 30,000 cupcakes, calculate an overhead rate per cupcake that includes rent, utilities, and insurance

10If Daisy wanted to use activity based costing, identify a minimum of 3 different activities and an appropriate cost driver for each.

11Have a cash budget for the company's first year of operations based on sales of 30,000 cupcakes.Assume all sales are cash sales and that all costs and expenses are paid in cash.Rent, insurance, and advertising costs will be paid on a monthly basis. The interest on the loan will be paid monthly with a $10,000 principal payment at the end of the year.A minimum cash balance of $5,000 should be maintained

12Prepare the company's forecasted income statement for the year ended on 6/30/2019 based on the sale of 30,000 cupcakes

13Describe the variances that Daisy should analyze to monitor the business.

14Provide at least 4 metrics that Daisy could include to monitor the business using a balanced scorecard approach.

15If Daisy decides to expand her business by investing in her own equipment, which capital budgeting model would you recommend?Why?

16Will you lend $50,000 to Daisy to start her business?Based on the calculations performed explain why or why not