Hannibal Lecter incorporated Hannibal's Sweets two years ago, hoping to eventually tap into the lucrative health cereal market. Located in Southwestern Ontario, Hannibal's Sweets Inc. (HS) has yet to start selling any cereal; but Hannibal had completed test production and researched the cereal industry. Hannibal has taken his grandfather's secret recipe for all natural cereals and has developed three different cereals Liver/Chocolate/Oat; Cream/Liver/Nut and Papaya/Plum/Liver Flavour. All cereals are manufactured in a similar way, will use the same production facilities, and will have almost identical cost structures. Recognizing that he doesn't have an adequate background in accounting, Hannibal has hired you to use the data that he has collected and prepare a report for him to assist him in his business venture. Information is presented in Appendix I. In the report, Hannibal would like you to calculate his anticipated break-even and sensitivity analysis based on his predicted scenarios. In addition to this, he would like to know what he would need to sell to pay himself a target salary (ignore any taxes). In addition, Hannibal would like you to address any factors that may impact your calculations and ensure you support your calculations and assumptions. You should evaluate the information he has provided you and address any concerns you may have, including (but not limited to), marketing or strategic concerns. Required Prepare the report The Canadian cereal market is a multi-billion dollar industry with average annual revenues approximating $456 million dollars. Smaller companies tend to run more profitable than larger companies; Hannibal expects to lease space at a manufacturing facility for $11,000 per month. This includes the use of their machinery for production; The cost of the raw materials is the most expensive part of the manufacturing of the cereal. Hannibal estimates that each box will result in raw material costs of $1.25 and packaging costs of 0.15 each. This is higher than the industry average but is the result of the low production volume he is estimating, and the higher quality of ingredients being used in the cereal; Hannibal is estimating the following other costs: $450 $500 Monthly website fees: Monthly utilities: Annual licensing: Other fixed costs annually: $5,000 $100,800 The above costs do not include any salary for Hannibal. . Production labour is considered variable in this industry and is estimated at $0.40 per box. Hannibal is targeting health food stores and upscale grocery stores and is expecting to charge the stores between $3.50 and $4.20 per box with a target retail price to consumers of $4.99. He would like your opinion on what he should do here. The average price charged to stores for cereal is $4.00 per box. This includes no name brand cereal and higher end cereal. Cereal customers are paying much closer attention to what goes into a box of cereal. Higher quality ingredients can typically capture a higher price in grocery stores. At a minimum, Hannibal believes he can sell about 5,500 boxes per month in his first three months, and then about 8,500 boxes per month thereafter. Based on his research, he believes that he can actually sell 7,000 per month in his first three months, and then 11,000 boxes per month thereafter. If his cereal takes off quickly, a lofty, but not unrealistic target would be monthly sales of 19,000 boxes. Store location is everything when selling cereal. The ideal location is at the end of an aisle at average eye level. This will typically result in a 4% increase in sales. Stores generally want a 2% reduction in the cereal box price for this premium location. . Hannibal would like a target profit of $65,000 as this would allow him to pay himself a small salary. Hannibal Lecter incorporated Hannibal's Sweets two years ago, hoping to eventually tap into the lucrative health cereal market. Located in Southwestern Ontario, Hannibal's Sweets Inc. (HS) has yet to start selling any cereal; but Hannibal had completed test production and researched the cereal industry. Hannibal has taken his grandfather's secret recipe for all natural cereals and has developed three different cereals Liver/Chocolate/Oat; Cream/Liver/Nut and Papaya/Plum/Liver Flavour. All cereals are manufactured in a similar way, will use the same production facilities, and will have almost identical cost structures. Recognizing that he doesn't have an adequate background in accounting, Hannibal has hired you to use the data that he has collected and prepare a report for him to assist him in his business venture. Information is presented in Appendix I. In the report, Hannibal would like you to calculate his anticipated break-even and sensitivity analysis based on his predicted scenarios. In addition to this, he would like to know what he would need to sell to pay himself a target salary (ignore any taxes). In addition, Hannibal would like you to address any factors that may impact your calculations and ensure you support your calculations and assumptions. You should evaluate the information he has provided you and address any concerns you may have, including (but not limited to), marketing or strategic concerns. Required Prepare the report The Canadian cereal market is a multi-billion dollar industry with average annual revenues approximating $456 million dollars. Smaller companies tend to run more profitable than larger companies; Hannibal expects to lease space at a manufacturing facility for $11,000 per month. This includes the use of their machinery for production; The cost of the raw materials is the most expensive part of the manufacturing of the cereal. Hannibal estimates that each box will result in raw material costs of $1.25 and packaging costs of 0.15 each. This is higher than the industry average but is the result of the low production volume he is estimating, and the higher quality of ingredients being used in the cereal; Hannibal is estimating the following other costs: $450 $500 Monthly website fees: Monthly utilities: Annual licensing: Other fixed costs annually: $5,000 $100,800 The above costs do not include any salary for Hannibal. . Production labour is considered variable in this industry and is estimated at $0.40 per box. Hannibal is targeting health food stores and upscale grocery stores and is expecting to charge the stores between $3.50 and $4.20 per box with a target retail price to consumers of $4.99. He would like your opinion on what he should do here. The average price charged to stores for cereal is $4.00 per box. This includes no name brand cereal and higher end cereal. Cereal customers are paying much closer attention to what goes into a box of cereal. Higher quality ingredients can typically capture a higher price in grocery stores. At a minimum, Hannibal believes he can sell about 5,500 boxes per month in his first three months, and then about 8,500 boxes per month thereafter. Based on his research, he believes that he can actually sell 7,000 per month in his first three months, and then 11,000 boxes per month thereafter. If his cereal takes off quickly, a lofty, but not unrealistic target would be monthly sales of 19,000 boxes. Store location is everything when selling cereal. The ideal location is at the end of an aisle at average eye level. This will typically result in a 4% increase in sales. Stores generally want a 2% reduction in the cereal box price for this premium location. . Hannibal would like a target profit of $65,000 as this would allow him to pay himself a small salary