For time management purposes, students are strongly advised to submit their assignments by the due date above, relative to their local time zone. Late penalties, however, will not be applied until after 8:00 a.m. Atlantic Time the following day.

Late Submission Policy

• This assignment is subject to the Late Submission penalty policy, namely 5% per day for three days.
• This page will close and will not allow further submissions after this Late Submission period has expired.
• In the event of an emergency preventing you from submitting within this time frame, special permission must be obtained from your instructor. Documentation substantiating emergency is required. In such a circumstance, if the extension is granted, the professor will reopen the submission function for you on an individual basis.
• Please do not email your submissions to your professor, either before or after the due date; all coursework should be submitted through the online course (Moodle).

Objectives

• To develop an ability to identify and assume an assigned role.
• To be able to identify and rank the importance of explicit issues.
• To illustrate the importance of hidden (undirected) issues that arise from a detailed analysis.
• To identify accounting issues (GAAP/IFRS compliance issues), assess their implications, generate alternatives, and provide recommendations within the bounds of GAAP/IFRS to meet the client's needs.
• To examine how accounting standards impact financial measures (ratios, covenants, etc.).
• To prepare a coherent report and integrated analysis that meets specific user needs.

Instructions

In order to complete your case analysis successfully

• identify the role you are playing,
• assess the financial reporting landscape considering the user needs, constraints, and business environment,
• identify the issues,
• analyze the issues (qualitatively and quantitatively), and
• provide a recommendation and conclusion.

An average grade will result from answering all questions with basic coverage and accuracy, showing all your work. Additional points come from including greater detail, astute, informed commentary where appropriate and connections to readings and other content.

Respond in a single Word doc (or comparable text editor).

Background

You are a Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. A consumer business partner within the firm notices your availability at 3:00 PM on a Friday afternoon and pulls you into a meeting with one of his high profile clients.

Dark and Bold Inc. manufactures a line of single-cup brewing machines for home and office use that brew a cup of coffee, tea, or hot chocolate in less than a minute. The machines use specially packaged portions of coffee, tea, or hot chocolate that can be purchased online directly from Dark and Bold or at Second Cup coffee shops who are licensed to distribute the company's products. The appeal of the brewing machines is twofold. First, they offer a high level of convenience. The use of prepackaged coffee servings means no grinding of coffee beans and no mess. Also, the brewing machines have a water reservoir that for some models is large enough to make up to 20 cups of coffee. Second, the taste of each cup of coffee, tea, and hot chocolate is very consistent. The brewers' pressurized system uses the same amount of water for each cup and the airtight seal used in the individual portions keeps the product fresh.

Additional Information

The company has three models of brewers that offer different features, such as the size of the water reservoir, the number of brewing sizes, and the types of filtering devices used in the machine. Data from the most recent fiscal year for the three models is shown below.

Model

Home Brewer

Office Brewer

European Deluxe

Sales volume (units)

12,000

30,000

6,000

Unit selling price

$150

$200

$300

Variable cost per unit

120

140

180

Contribution margin per unit

$30

$60

$120

Fixed costs are $1,500,000 per year. The company has no work in process or finished goods inventories. The company is facing increased levels of competition from manufacturers using similar brewing technologies and believes there is no room for any increases in unit selling prices.

Dark and Bold Inc. is unsure of the strategies to take in order to increase profitability. The engagement partner would like the following questions on his desk by Monday morning:

2. Calculate the company's overall break-even point in sales dollars.
4. Calculate the sales dollars required for each product at the overall break-even level of sales calculated in (1) above.
6. Calculate the company's overall break-even point in total units.
8. What impact would doubling the number of Office Brewer units sold next year have on the overall break-even point in sales dollars? Assume that there will be no changes to the Home Brewer or European Deluxe unit sales, that unit selling prices and variable costs will remain the same for each model, and that total fixed costs will be unchanged.
10. The company is considering a new advertising campaign to raise overall consumer awareness of the product offerings. The total cost of the year-long campaign would be $150,000. By how much would sales need to increase overall for the company to be able to justify the new campaign? Assume no change to the current product mix.
12. Suppose that instead of being designed to increase total sales volume, the new $150,000 advertising campaign will focus on getting customers who would have purchased the Office Brewer model to buy the European Deluxe model instead. To justify the cost of the new advertising, how many customers must purchase the European Deluxe model instead of the Office Basic model? Assume that the new advertising campaign will have no impact on sales of the Home Brewer model.
14. The company is considering adding a new product to its line of brewers targeted at the office use market (both the Office Brewer and European Deluxe are currently targeting office users). The new brewer, the Office Plus, would sell for $250 per unit and would have variable unit costs of $160. Introducing the new model would increase fixed costs by $102,000 annually and reduce annual unit sales of the Office Brewer and European Deluxe models by 10% each. Assuming no change to the sales of the Home Brewer model, how many units of the Office Plus would need to be sold to justify its addition to the product line next year?

Evaluation

Case Analysis 2 will be marked in its entirety out of 100. The following rubric indicates the criteria students are to adhere to, and their relative weights to the assignment overall.

Activity/Competencies Demonstrated

% of Final Grade

1.

Identification, Analysis of Issues, Recommendation (100%)

a. Calculate the break-even sales for each product.

/10

b. Calculate the sales dollars for each product at the break-even level of sales.

/10

c. Calculate the break-even in total units.

/10

d. Analyze the impact of doubling Office Brewer sales on overall break-even.

/15

e. Analyze and provide a recommendation on the advertising campaign decision.

/15

f. Analyze and provide a recommendation on the European Deluxe decision.

/20

g. Analyze and provide a recommendation on the Office Plus decision.

/20

Total

/100