Des Gateaux is a profitable family bakery business with a long-standing reputation. The business was founded in 1980, Julien Bernard took over the management of the business in 2010 from his father Michel.

Although the business is performing very well, and the products are popular in the locality, Julien realises the business must seek new opportunities. Following some initial research Julien has decided to pursue the idea of opening a snack counter. He already has a vacant premises very close to a school which Julien sees as a good opportunity.

To progress this idea, Julien has decided to keep it quite simple and offer a sandwich & drink combo deal. Based on his research, the tourist trade in the summer should compensate for the school being closed, so monthly sales are expected to be relatively consistent.

As this is a family business, Julien is effectively CEO, marketing and operations manager. However, the analysis needed to determine if the snack counter is viable is beyond his limited accounting experience. He has therefore contacted you, as an employee of Coyne Consulting Ltd., to objectively evaluate the proposed new venture and get back to him with your findings and recommendation.

Julien has provided you with the following year 1 forecast information for your analysis:

Table 1: Snack Counter Feasibility Data

Panel A: Forecasted sales and marketing data

	Sandwich & drink combo deal
First year sales volume (units)	80,000
Selling price	4.80

Panel B: Forecasted raw material food costs

Average cost of sandwich fillings	1.88
Average cost of drink	0.40
Average cost of bread	0.25

Panel C: Forecasted additional costs

Packaging costs per sandwich	0.22
Packaging costs per drink	0.34
Salary costs per month	4,800
Sundry expenses per month	1,200
Annual rent of premises	25,000
Advertising expenses per annum	14,000

Panel D: Forecasted chocolate cookie information (relevant for requirements (c) & (d))

Anticipated sales volume (units)	16,000
Selling price per cookie	0.95
Raw material cost per cookie	0.10
Packaging costs per cookie	0.10

Requirement:

1. Prepare a statement for the first 12 months of the business setting out the expected total revenue, total contribution and total profit. Ignore the option of selling cookies (Panel D). Note: It is not required to show this on a month by month basis.

2. Calculate the breakeven point (in units and ) and the margin of safety % for the Year 1 forecast. Ignore the option of selling cookies (Panel D).

3. Des Gateaux may consider introducing a chocolate cookie in addition to the sandwich & drink combo deal. Using the information in Panel D, calculate the revised breakeven point and the margin of safety % for the year 1 forecasts using the weighted selling price and weighted average contribution per unit.

4. Based on your analysis in parts a), b) and c), prepare a report in which you:
   1. Explain the usefulness of cost volume profit analysis techniques in helping Julien reach a decision about the snack counter proposal, including the limiting assumptions that he should be aware of;
   2. Explain and interpret your calculations and analysis in parts (a), (b) and (c) in a manner that is useful for someone with a very limited accounting knowledge;
   3. Highlight key insights emerging from the analysis that will be helpful to Julien, in particular is it worthwhile to introduce the cookie product?
   4. Provide a recommendation to Julien.

5. What other factors should Julien consider before reaching a decision?