Enzo is the founder and co-owner of a new company named EcoChic Handbags, a company that specializes in producing high-quality vegan leather handbags. The company has gained popularity in recent years due to the increasing demand for sustainable and cruelty-free fashion products. To effectively manage their business, EcoChic Handbags has reached out to you to assist with improving operations and providing more insight into the company. Enzo provides you with financial statements from his first three years of operations and is looking for some help with the numbers. Im good at fashion and design, but accounting makes me nervous! exclaims Enzo. Maxwell, the co-owner chimes in as well, Yes, I have better things to do than crunch all these numbers! Im flying to South Africa next week for a VIP safari and hunting trip! Company Information EcoChic Handbags was founded by two entrepreneurs who are passionate about eco-friendly and cruelty-free fashion. The company sources its materials from sustainable and ethically responsible suppliers, and their products have gained a loyal customer base that values both style and environmental consciousness. EcoChic Handbags currently operates a production facility and an online retail store. They are now planning to expand their business by opening physical retail stores in prime locations. Customers are drawn to their tagline Keeping water clean, air pure, and fashion fresh. Financial Information The company's financial statements are exhibited in Appendix 1, with some important details about operations. Appendix 2 provides some benchmarks from similar companies operating in the same retail space. Enzo states, I want some details about how my company compares to the industry standards. I'm absolutely certain that we are exceeding standards on every single factor! Were genuinely the best in the business! Enzo goes on to add to the list of tasks, The company is uncertain about which of its expenses are variable or fixed, so we need your assistance with determining this along with what constitutes direct material costs, direct labour costs and manufacturing overhead. Its all so confusing! I have enough on my plate between the designing, sourcing of materials, and running our social media page. You and your team learn, from a walkthrough of the facility, that 20% of expenses are allocated to the head office and 80% is allocated to the product and design costs. The company has two revenues streams design costs are incurred when Enzo designs handbags and sells the design to other fashion labels to produce- the product revenue is from the sale of handbags made of sustainable materials. During the warehouse tour, Maxwell starts to complain, The partnership doesnt make enough money to meet my lifestyle. Im looking to maximize profits and I want your advice on how we can cut or manage costs. Im thinking one of the best places is in the recycled materials. Its become quite costly to process water bottles into polyester and continue to find materials to create sustainable bags. I want to use cheaper material shipped in from Sri Lanka and Vietnam. Also, Im thinking of outsourcing the labour to Indonesia and Venezuala. With the new rise in minimum wage, its so much cheaper to have them sew the bags than to continue to pay labourers in British Columbia. Plus, weve printed off all our labels and tags, we can just ship them over there and have them sewn on by the Venezuelans. Were still vegan friendly and sustainable since were not using leather, so its fine Maxwell then dropped his voice to a whisper, just don't tell Enzo because he can be a bit delusional when it comes to all this sustainability stuff. During the year, the company sold 547 handbags and Enzo sold 5 designs to various other manufacturers. The handbags have a fixed sale price but the designs tend to vary in price depending on their level of complexity and difficulty. Enzo also mentioned to you that he is curious about how many units the company needs to sell to break even and what the current margin of safety is. He also wants you to prepare a quarterly sales budget for 2024 to 2026. Due to the seasonal nature of the business, assume that the company sells 1.5 times more during the spring and summer months than in the Fall and Winter. Enzo is forecasting that the company will sell 200 bags during the winter month of 2024 as the company is quickly growing. What is the estimated budgeted total revenue per year for 2024, 2025 and 2026? He expects handbag demand to increase by 20% year as well. EcoChic Handbags has built up an online presence, but Maxwell is considering opening physical retail stores. Maxwell wants your team to prepare an analysis of whether this is feasible for the company. Maxwell estimates rental costs of $2,000 per month, utilities of $300 per month, a one-time investment in store design of $7,000 and recurring salary expenses of $5,000 per month. He expects this change to increase sales revenue to 8 times its current levels and reduce the seasonality of the sales. Operating online costs $8,000 per year in hosting and requires $250 per month in order fulfillment employee wages. Maxwell wants your calculations on this in addition to any qualitative items that need to be considered in the decision. Prepare a return on investment calculation and determine the payback period for this capital investment. Enzo and Maxwell also want to know what steps they need to take to implement a budgeting process and why it is important to analyze budgets. What key variances should the compare to ensure the profitability and longevity of the company? Objective: Prepare a APA-formatted business report analyzing all the accounting, business, and ethical issues raised in the case with detailed recommendations to Eco-Chics management. Please note that your work WILL be analyzed for similarity and AI use! State and make any assumptions necessary for your calculations. Appendix A: Financial Statements Balance Sheet EcoChic Handbags Statement of financial position As at December 31 2024 2023 2022 ASSETS Current Assets Cash 1,834 2,560 1,983 Inventories 371 389 365 Prepaid expenses 275 265 259 Total Current Assets 2,480 3,214 2,607 Property, Plant and Equipment net 40,956 43,512 42,774 Intangible assets 4,983 4,983 4,983 Goodwill 2,200 2,200 2,200 TOTAL ASSETS 50,619 53,909 52,564 LIABILITIES & S/H EQUITY Current liabilities Trade payables 1,692 1,642 1,598 Accrued Liabilities 2,160 2,430 2,295 Income taxes payable 400 350 325 Employee bonuses payable 1,250 3,975 1,850 Current portion L/T debt 1,275 1,275 1,275 Current portion redeem Preferred Shares 1,500 1,500 1,500 Total current liabilities 8,277 11,172 8,843 Long-term debt Term loan bank 15,311 16,586 17,861 Redeemable preferred shares 7,500 9,000 10,500 Total long-term debt 22,811 25,586 28,361 Total liabilities 31,088 36,758 37,204 Shareholders' Equity Share capital 4,000 4,000 4,000 Retained earnings - - - Total shareholders' equity 4,000 4,000 4,000 TOTAL LIABILITIES & S/H EQUITY 35,088 40,758 41,204 Appendix A continued: Financial Statements Income Statement EcoChic Handbags Income Statement As at December 31 2024 2023 2022 REVENUES Design revenue 41,057 46,511 45,117 Product revenue 23,445 24,224 22,481 Total Revenue 64,502 70,735 67,598 EXPENSES Design costs 24,142 25,953 23,270 Product costs 5,887 5,261 5,176 Advertising and promotion 718 703 695 Amortization 4,691 4,640 4,628 Employee wages and benefits 11,868 13,075 13,292 Employee bonuses 1,250 3,975 1,850 Rent 3,926 4,020 3,978 Operating costs 7,452 8,659 9,520 General and administrative 1,536 2,078 2,080 Total Expenses 61,470 68,364 64,489 Operating Income 3,032 2,371 3,109 Interest income 22 23 15 Interest expense (792) (851) (910) Foreign Exchange gain (loss) (93) (172) (55) Income before taxes 2,169 1,371 2,159 Income taxes (25%) 542 343 540 Net earnings 1,627 1,028 1,619 Appendix 2 Industry Standard Ratios Type Ratio Benchmark Liquidity Current Ratio 0.67 Quick Ratio 0.64 Cash flow liquidity ratio 1 Inventory Turnover 17 Days to Sell Concession 21 Accounts payable Turnover 10 Accounts payable Payment Period 32 Solvency Long term debt to equity 0.47 Debt to Equity 1.2 Debt to assets ratio 0.54 Times interest earned n/a Cash Flow to Total Liabilities 1 LTD to EBITDA n/a Profitability Operating Margin 9% Net Profit margin 6% Return on sales 4.70% Return on Equity 4.70% Return on Assets 10.40% Design costs to design revenue 52% Advertising as percentage of revenues 2% General and admin as percentage of revenues 6% please prepare recommendation for this group case study