In about 1000 words, review Anthony's Orchard case study in the unit resources.

Consider the following:

• The company, according to Anthony's Orchard Strategic Plan, is hoping to purchase an apple press in order to start a new line of prepared apple products?apple juice.
• The company estimates this new product offering will generate an additional $95,000 net income per year and estimated cash flows of $90,000 per year. The cost of the apple press will be $950,000 and this expenditure, as shown in the budgeted cash flow statement, is expected to take place in the fourth quarter of 2012.
• The apple press is expected to have a seven-year life and no salvage value.
• The company requires a 10% return on investment for new capital investments and the company uses a cost of capital of 8%.
• The company's revenue goal for 2015 is $25 million.
• Assume a minimum 12% gross margin on revenue.

To complete this Individual Assignment, answer the following:

• Do you think the company's revenue goal of $25 million by 2015 is realistic?
• Explain how purchase of the apple press might affect the company's revenue goals. Based on this information, explain whether Anthony's Orchard should invest in the apple press. Support your response with relevant information provided in the case study, the previous year's financials for 2010, the current year's financials for 2011 and the budgeted year's financials for 2012.
• Draft budgeted financial statements from 2012 to 2015 under both options that provide a realistic assessment of expected revenues and costs, and explain how you have arrived at these budgeted figures.

Notes:

Please note that it should not be more than 1,100 words.

The actual questions asked should be addressed.

You should fully state and justify any assumptions that you make in relation to the financial data you use. Be sure to include all references as well.

http://mym.cdn.laureate-media.com/2dett4d/UOR/MGMT/0021/02/mm/website/investors.htm

Anthony Orchards http://mym.cdn.laureate-media.com/2dett4d/UOR/MGMT/0021/02/mm/website/about_us.htm About Anthony's Orchard Anthony's Orchards is a 3rd-generation, family-owned 6,000-acre orchard situated in Wenatchee Valley, the heart of apple producing in Washington State. Surrounded by gently rolling mountains Anthony's Orchard has been growing apples in the valley for over 60 years. Our waterfront orchards line the region's rushing rivers. The nutrient-rich soil and our advanced growing practices provide the right mix for producing some of the world's top-quality apples. Washington State has been known for its apples and produces a wide variety. At Anthony's Orchard, we have focused on two varieties of apples: Braeburn and Honeycrisp. Mission Statement Our mission is to continually enhance consumers' awareness of apples and apple orchards. Vision Statement Our vision is to provide the best apple products and services to our customers and generate returns for our shareholders, while enhancing the well being of our community. Careers at Anthony's Orchard Looking for a fulfilling career in apples? It may not be the Big Apple, but in addition to a great benefits package, Anthony's Orchard offers all the clean air and fresh fruit you could ever want. Investor Information Crunch into the financial information on our Investor Relations page. You'll find the data as crisp and fresh as this morning's harvest. Our Apples Because Anthony's Orchard is a family run orchard, we grow every apple to be delicious and healthy for you and your family just like we would for ours. We choose only the highest-quality trees and carefully select varieties that thrive in Wenatchee Valley. Anthony's Orchard currently features: Braeburn These beautiful red-orange apples burst with flavors that are both sweet and crisp. One bite is all you'll need to discover that Braeburn apples make a perfect snack for you or the kids. A hybrid descended from the Granny Smith variety, they also retain some of that apple's signature tartness and are ideal for cooking in desserts and applesauce. Chomp or cook: perfect for both! Season: October - July Honeycrisp Intense flavors and unique colors combine in this versatile apple. A mix of green and red colors complement the mix of sweet and tart flavors. Although small in size, Honeycrisp lives up to its namesake with a sweet and crunchy experience waiting in every bite. The tart flavors and dense texture also work great in your favorite pies or applesauce. All Anthony's Orchard apple pies feature fresh and delicious Honeycrisp apples right from our orchard. Chomp or cook: perfect for both! Season: October - May Prepared Apple Products Just Like Mom's At Anthony's Orchard, we use time-honored family recipes to make all of our apple products. The result? Simply amazing pies and applesauce made with fresh and natural ingredients. The only thing missing is mom's oven. Apple Pie Filling Treat your family to a hot, fresh apple pie without the hassle using our prepared apple pie filling. We start with our freshly picked Honeycrisp apples; wash, core, and dice them; and prepare the filling with our secret family recipe, all in our own kitchen. Available now in our orchard store and at local retailers. Applesauce Hot or cold, applesauce is a year-round treat. Our Braeburn and Honeycrisp apples give just enough sweet and tart flavors for a refreshing applesauce that's perfect for breakfast, lunch, dinner, or dessert. Available now in our orchard store and at local retailers. Where to Find Our Apple Products Anthony's Orchard works with a several national retail outlets. Just look for our logo next time you're in the apple aisle at your local market! Pick Your Own Apples Bring the whole family and pick as many apples as you can carry. The orchard is open during apple season 8 a.m. to 6 p.m. daily. We sell all of our apple varieties by the pound. Bring your own bag and we offer a discount. Thanks to all the wonderful folks who continue visiting our Orchard. See you soon! CSA Program, May - August Our Community Supported Agriculture (CSA) program is a win-win for you and for us. You get the best selection of our apples, picked and delivered weekly right to your door. And you help Anthony's Orchard by becoming a loyal patron of our hard work. We'll deliver your CSA every Wednesday through our peak season, May - June for our Honeycrisp apples and July - August for our Braeburn apples. You can participate in our CSA as a full share member (for a family of four) or half share member (for a family of two): Full share: 2 dozen per week, 10 Half share: 1 dozen per week, 5 For more information visit our store or look for a flyer at your local market Fall Harvest Festival, October 1 - 31 Join us for our annual Fall Harvest Festival during the month of October with tricks and treats for the young and the young at heart. Take a spooktacular hayride through the orchard and over to our pumpkin patch, where you can pick out your very own future jack-o-lantern. Just watch out for our very own phantom of the orchard, old Apple Lloyd Webber! Educational Programs Turn our orchard into your classroom with special programs designed to enhance learning and build appreciation for farming and agriculture. Guided tours through the orchard and production facilities offer students an opportunity to learn more about where their food comes from and how it moves from the field to the market. We'll also work with you to tailor the lessons to meet the needs of your class' age group and your curriculum. Welcome to the Apple Store You'll find plenty of our fresh apples, apple products, and other items like kitchen tools designed to help you turn apples into awesome. Products: Fresh Braeburn and Honeycrisp apples from our orchard (available year-round) Apple pie filling Applesauce Cookbooks Apple presses, peelers, and corers Other apple merchandise Note: exact product selection may vary. Store Hours: 7 days a week, 8 a.m. to 6 p.m. Location: Once you arrive at the orchard, turn left and follow the road to the big red barn. Look for the red door on the right. Interview With Anthony's Orchard CEO Bob Frost CEO Bob Frost discusses the general financial health of the company. Anthony's Orchard is a third-generation, family-owned orchard. We've been in business well over 60 years, having been established in the years following World War II. Throughout our history, the company has experienced periods of tremendous growth, as well as a few very lean years. I think our longevity can be attributed to a number of factors. In agriculture, so much is dependent on production. We have always enjoyed a geographic advantage, as our orchards are located in some of the best regions in the world for growing apples. Howeverand I think this is vitally important to notewe have never been satisfied to rely on that single advantage alone. Historically, our corporate culture has always been one of fostering innovation to support our inherent advantages. We have repeatedly shown a willingness to invest in technology aimed at improving the quality and volume of our products. Since I joined the company in 1990, we have made it a priority to invest in technologies aimed at improving our growing practices. I think this practice has proven to be an invaluable tool in helping us address fluctuations in weather conditions, competition, and a variety of other threats to our market and our organization. We are excited about our future, and have aggressive plans for it. Among these plans is expansion into a new product line. We hope to be producing and distributing Anthony's Orchard apple juice within the next 3 to 5 years. Ultimately, these and other strategic plans will depend on current and projected business conditions. We must remain mindful of cash flow, operating costs, and the threats associated with the natural environmental factors that affect our product line. We feel good about business conditions, but it is also very important to continually monitor those conditions and to consider them when developing and executing strategic plans. Budgeted Income Statement Net Revenue Less Cost of Goods Sold Gross margin Prepared Apple Products Pick your own apples Community Events $ $ $ 8,749,250 3,248,700 2,499,695 (7,692,215) 1,057,035 12% (2,682,356) 566,344 17% (1,536,073) 963,622 39% Less Admin Costs Interest on debts Net Income before taxes Income taxes (40%) Net Income *Includes CSA, Educational programs and festivals Sales in the Quarter 75% collected in this quarter 25% collected from last quarter Cash from sales Budgeted Cash Flows Quarter 2 Quarter 3 $ $ 3,624,411 ### 3,624,411 2,718,308 ### 2,718,308 950,000 906,183 ### 3,668,308 3,624,491 3,624,491 Less: Apple purchases Direct Labour Other ingredients Variable Overhead Fixed Factory overhead Admin Costs Income taxes 8,617,033 304,380 31,433 513,000 181,250 351,250 86,586 304,380 ### ### ### ### ### ### ### 31,433 513,000 181,250 351,250 86,586 Total Cash Expense Before Interest 10,084,933 1,467,900 ### Cash flow from operations (6,416,624) 2,156,512 ### Beginning Cash Balance Less: minimum cash reserve Cash available for operations 1,750,000 500,000 1,250,000 500,000 ### - ### 500,000 - New Short term borrowings Repayment of loan and interest Outstanding loan balance 5,166,624 5,166,624 2,156,512 3,010,112 ### 853,601 Quarter 1 $ Interest at 3.5% per quarter Capital exp* Ending Cash balance 180,832 500,000 105,354 ### ### 29,876 500,000 *Company is planning to purchase an apple press, which is expected to have a seven year liffe and no slavage value. Company Beginning Inventory Cost of goods processed Direct Labour cost Direct material cost Factory overhead cost Total Cost of processing COGS Budget Prepared Apple Products Pick your own apples Community Events 1,100,000 750,000 180,170 Available for sale less: Ending Inventory 913,140 4,522,575 2,264,000 7,699,715 2,657,856 2,657,856 1,530,903 8,799,715 (1,107,500) 7,692,215 3,407,856.00 (725,500) 2,682,356 1,711,073 (175,000) 1,536,073 Budgeted Balance Sheet Cash Accounts receivable Inventory: Prepared Apple Products Pick your own apples Community Events YE 9/30/11 $ 1,750,000 950,000 1,100,000 750,000 180,170 Total Inventory Fixed Assets Total Assets 2,030,170 2,830,000 7,560,170 Accounts Payable Long term debt Total Liabilities 1,475,000 2,150,000 3,625,000 Shareholder equity 3,935,170 Total Liabilities & Equities 7,560,170 *Note that Anthony's Orchard has long term debt for 30years, which it has not begun to pay back Administrative Budget Technology 430,000.00 1,530,903 Marketing Executive Team Finance Facilities Procurement Usage by operating Division Prepared Apple Products Pick your own apples Community Events Finance Marketing Executive Team Technology Procurement Facilities 300,000.00 300,000.00 175,000.00 125,000.00 75,000.00 1,405,000.00 Transfer Pricing Marketing Technology 20% 15% 25% 10% 15% 5% 0% 5% 5% 100% Step down method Explore two options of allocating in the following order Technology, Marketing, Executive Team, Finance, Facilities, Procurement Executive Team, Finance,Technology, Facilities, Procurement, Marketing, 30% 30% 40% 0% 0% 0% 0% 0% 0% 100% Executive Team 30% 20% 25% 5% 5% 0% 5% 5% 5% 100% Total $ 14,497,645 (11,910,644) 2,587,001 18% (1,405,000) (316,140) 865,862 (346,354) 519,517 Quarter 4 Full year $ 3,624,411 14,497,644 2,718,308 10,873,232 906,183 3,668,549 3,624,491 14,541,781 181,250 351,250 86,586 8,617,033 913,140 94,300 1,539,000 725,000 1,405,000 346,344 619,086 13,639,818 3,005,325 901,724 500,000 500,000 1,169,662 - 950,000 1,385,663 no slavage value. Company uses a 85 cost of capital estaimate. This press will be purchased and owned by our Prepared Products Group Finance Facilities 15% 50% 10% 0% 5% 5% 5% 5% 5% 100% Procurement 40% 20% 15% 5% 5% 5% 5% 5% 0% 100% 30% 30% 15% 5% 5% 5% 5% 0% 5% 100% ared Products Group Cost of Apples Thousands of Pounds of Braeburn X Average Cost of Braeburn Thousands of Pounds of Honeycrisp X Average Cost of Honeycrisp Direct Materials 2010 Prepared Apple Products $ 6,000.00 362 2,172,000.00 3,950.00 360 1,422,000.00 3,594,000.00 Cost of Other Ingredients Cost per Case 0.4 179000 71,600.00 3,665,600.00 Direct Labour 2010 Prepared Apple Products Pick Your Own Apples Inspection, washing, peeling, coring Saucing Dicing Cooking Canning Total Hours per Case X Number of Cases Number of Labour Hours x Labour Rates Total labor Cost 0.24 0.10 0.10 0.12 0.10 0.66 179,000.00 118,140.00 8.80 1,039,632.00 8.80 - aterials 2010 Pick Your Own Apples Community Events $ 4,550.00 362 $ 362 1,647,100.00 225.00 360 - 81,000.00 1,728,100.00 ### - 1,728,100.00 - Direct Materials 2011 Prepared Apples Cost of Apples Thousands of pounds of Braeburn X average cost of Braeburn $ $ 6,300 358.00 $ 4,150 380.99 2,255,400 Thousands of pounds of Honeycrisp X average cost of Honeycrisp 1,581,109 3,836,509 Cost of other ingredients Cost per case X number of cases $ 0 190,000 83,600 3,920,109 Inspection, washing, peeling, coring Saucing Dicing Cooking Cannin Total hours per case X # of cases # of lanor hours X labor rate Total Labor cost Net Revenue Less: Cost of Goods sold Less Admin Costs** Interest on debts Net Income before taxes Direct Labour 2011 Prepared Apples Pick your own apples 0.20 0.08 0.04 0.12 0.10 0.54 190,000 102,600.00 $ 8.85 ### $ 908,010.00 - 2011 Income Statement Prepared Apples Pick your own apples $ $ 6,621,468 2,273,180 (5,909,619) 711,849 11% (1,909,575) 363,605 16% Income taxes (40%) Net Income *Includes CSA, Educational programs and festivals 2011 Sales Cases sold Price/Case $ Prepared Apple Products Pick your own apples Community Events 157,654.00 17,486.00 4,397.00 42.00 130.00 480.00 Sales in the Quarter 75% collected in this quarter 25% collected from last quarter Cash from sales 2011 Cash Flows Quarter 2 $ 2,751,302 2,063,477 650,000 2,713,477 Less: Apple purchases Direct Labour Other ingredients Variable Overhead Fixed Factory overhead Admin Costs Income taxes 7,934,291 302,670 27,867 513,000 162,500 261,250 61,858 ### ### ### ### ### ### Total Cash Expense Before Interest 9,263,436 1,329,145 (6,549,595) 1,422,157 Beginning Cash Balance Less: minimum cash reserve Cash available for operations 3,392,286 500,000 2,892,286 500,000 ### - New Short term borrowings 3,657,673 Repayment of loan and interest Outstanding loan balance Interest at 3.5% per quarter Capital exp* 3,657,673 128,019 - Quarter 1 $ Cash flow from operations ### ### 687,826 2,751,302 1,422,157 2,235,516 78,243 ### Ending Cash balance 500,000 ### *Company is planning to purchase an apple press, which is expected to have a seven year liffe and no slavage value. Company COGS 2011 Prepared Apples Products Pick your Own Apples Beginning Inventory Cost of goods processed Direct labor cost Direct materials cost Factory overhead cost Total Cost of processing Available for sale Less: Ending inventory Cost of goods sold 908,010 3,920,109 2,189,000 7,017,119 2,635,075 2,635,075 7,017,119 (1,107,500) 5,909,619 2,635,075 (725,500) 1,909,575 Direct Materials 2011 Pick your own apples Community Events $ 4,700 358.00 $ 2,250 ### 1,682,600 2,500 380.99 805,500.00 1,725 ### 952,475 2,635,075 - ### 2,635,075 Community Events 8.85 - Community Events Total $ $ 2,110,560 11,005,208 (1,287,708) 822,852 39% 657,208.00 1,462,708.00 (9,106,901) 1,898,307 17% (1,405,000) (234,728) 618,579 (247,432) ### 1,462,708.00 371,147 Actual Revenue $ 6,621,468 2,273,180 2,110,560 11,005,208 Quarter 3 $ Quarter 4 $ Full year 2,751,302 2,063,477 687,826 2,751,302 ### ### ### ### 11,005,208 8,253,908 2,713,478 10,967,383 302,670 27,867 513,000 162,500 261,250 61,858 ### ### ### ### 7,934,291 908,010 83,601 1,539,000 650,000 1,045,000 247,432 1,329,145 485,608 12,407,333 1,422,157 2,265,694 (1,439,950) 500,000 500,000 - ### ### ### 1,422,157 813,358 28,468 - ### 1,048,087 ### 500,000 1,717,607 ffe and no slavage value. Company uses a 85 cost of capital estaimate. This press will be purchased and owned by our Prepared Products Gr Community Events 1,462,708 1,462,708 1,462,708 (175,000) 1,287,708 by our Prepared Products Group