LBEC is a culinary institute proposed by Sophie Brazier, a famed Michelin star chef. Based on her vision and research, which she shared with her tax accountant, a revenue and profitability projection was prepared by the latter for the first year of operations. It appears that the business would suffer a loss of $152,260 and Sophie has requested a review the financial information. Requirements You are expected to review the financial information and prepare a report for Sophie Brazier with recommendations. 1. Critically examine the calculations and projections made by tax accountant. The tables are all provided in an Excel worksheet on Brightspace. 2. Provide an alternate set of calculations (in contribution format by course) to provide further insight to Sophie on the profitability of each of the proposed culinary courses. a. The per student cost calculation of $298 for all courses is a gross average based on a number of assumptions and grouping of all costs. b. Advertising and Marketing costs are treated as common costs and shared equally. c. Use the concept of traceable costs and cost drivers to directly assign or allocate the applicable Fixed and Indirect costs to the courses. d. Identify what costs are truly common or shared and should not be assigned to the courses. e. Without changing the number of courses or students or pricing what is a more accurate profitability of each of the courses? 3. What price per student per course is necessary for Sophie to at least break even? 4. Suggest some strategic and operational factors that Sophie should consider to improve the profitability of LBEC before going ahead with the project. For example: a. Pricing strategy of the different courses - target markets, competition, etc. Should it be the same for all courses? b. What is Sophie's target profitability or expected return? c. Competitive analysis of the Montreal culinary training market. What are cross marketing possibilities? Are there government grants or training funding available? d. What are some potential financial and non-financial KPIs and measures that could be used to evaluate performance and success?
*LBEC Data Tables(1) Q . Search Sheet + Home Insert Page Layout Formulas Data Review View X Cut Calibri (Body) * 1 12 . A- A- General AutoSum Wrap Text Copy Fill Paste Format BI UTY MA. # Merge & Center $ 9 % 2 00 Conditional Format Cell Insert Delete Format Sort & Formatting as Table Styles Clear Filter F21 X A C D E F G H K L M N P Q R S T 1 Table 1 Culinary Courses # of Courses # of Chef Duration Duration # of Students # of Student Programs > > Targeted market segment Total students Instructor Details planned per per course hours year Hours Fun (team building) cooking lessons 2 days a Juste pour le fun for organizations and its employees Weekends week/ 6 hours 300 3,600 360 (CSR) as part of their CSR initiative a day essons for young kids/community 2 days a Le week-end members who are learning how to Weekends week/ 6 hours 30 10 300 3,600 360 Cours cook, with a focus on healthy meals a day Individual lesson for 3 days a professionals/semi-professionals Jeune Chef 4 weeks week/ 2 hours 20 260 6,240 312 who aspire to become better rated per day chefs Group lessons for amateur groups, 3 days a Groupe Classe - who wish to enroll together as 4 weeks week/ 2 hours T 20 260 6,240 312 cuisson rapide friends/family and learn some quick | a day 6 cooking skills for everyday meals Tota 36 1,120 19,68 1,344 11 27 28 29 Table 1 Table 2 Table 3 Table 4 + Ready + 100%*LBEC Data Tables(1) Q . Search Sheet + Home Insert Page Layout Formulas Data Review View X Cut Calibri (Body) * 12 . A- A = Wrap Text AutoSum General AP. Copy Fill Paste # Merge & Center $ % 2 00 Conditional Format Cell Insert Delete Format Sort & Format Formatting as Table Styles Clear Filter A3 X V fx Grocery, produce and other food items B C D E F G H K L M N P Q 1 Costs Description Cost Type Activity Driver Remarks Annualised Cost Number of 3 $10 per student per hour Direct/Variable students For 4 week courses Direct/Variable Number of $5 per student per hour students or weekend courses Number of $40 per student/course Direct/Variable For all courses 5 students Number of $40 per day per student Direct/Variable students Only for weekend courses Number of $60 per instructor hour Direct/Variable instructional hours Useful life 10 years; no salvage Indirect/Fixed Number of Depreciation is a factor of the extent B value. Cost $100,000 student hours of student usage 10,000 Useful life 10 years; No salvage Number of Indirect/Fixed Depreciation is a factor of the extent value; Cost $40,00 student hours of student usage 4,000 Number of Utility consumption is a function of $2,500 per month Indirect/Semi-variable 10 student hours student's presence/usage 30,000 11 $1,000 per month Indirect/Semi-variable Common costs Cannot be traced to course groups 12,000 Number of Space usage is a function of $8,000 per month Indirect/Fixed 12 student hours student's presence 96,000 13 $5,000 per year Indirect/Semi-variable Common costs Cannot be traced to course groups 5,000 Cleaning/maintenance requirements 3 hours per day * 365 days @ $20 Indirect/Fixed Number of per hour student hours is a function of student's presence and usage of facilities 14 21,900 Number of Can be translated to per student per Direct/Fixed 15 courses course 86,000 16 264,900 17 18 te is to increase the week-end customer base as they feel that it is an untapped market. 19 an be increased and the companies can still afford it and there may be a cross marketing of the longer term courses. 20 's are approximately $1,000 per course offering * 86 course offerings during the year rising, Marketing & Promotional expenses for the week end programs, it worked out to be nearly $1,250 per week and course offering EEI 21 week courses. 22 costs cannot be traced, accurately and therefore should be treated as common costs eciation; Utilities, Rental Costs and Cleaning & Maintenance) could be allocated based on the planned classes and/or student hours during 23 lausible drivers. atad with coma caution: thara carte could also ha considered unaunidahla and tharafora ralavant in catting the fear nar courca or Table 1 Table 2 Table 3 Table 4 + Ready + 100%*LBEC Data Tables(1) Q . Search Sheet + Home Insert Page Layout Formulas Data Review View X Cut Calibri (Body) * 12 . A- A Wrap Text General AutoSum AP. Copy Fill Paste BI UTYMAY + Merge & Center $ % 2 00 Conditional Format Cell Insert Delete Format Sort & Format Formatting as Table Styles Clear Filter A3 X V fx |Grocery, produce and other food items A B C E F G H 1 J K L M N Table 2 Costs Costs Heading Description Cost Type Activity Driver Remarks Annualised Cost Grocery, produce and other Number of 3 food items $10 per student per hour Direct/Variable students For 4 week courses Grocery, produce and other food items $5 per student per hour Direct/Variable Number of students For weekend courses $40 per student/course Direct/Variable Number of Course materials For all courses students $40 per day per student Direct/Variable Number of Lunch & Refreshments students Only for weekend courses Number of Instructor's compensation $60 per instructor hour Direct/Variable instructional hours 20 Cooking stations; $5,000 Useful life 10 years; no salvage Number of depreciation is a factor of the extent B Indirect/Fixed each value. Cost $100,000 student hours of student usage 10,000 Equipment/Cutlery, etc. for the cooking stations; $2,000 Useful life 10 years; No salvage Indirect/Fixed Number of Depreciation is a factor of the extent value; Cost $40,000 student hours of student usage each 4,000 Utilities $2,500 per month Indirect/Semi-variable Number of Utility consumption is a function of 10 student hours student's presence/usage 30,000 11 Communications $1,000 per month Indirect/Semi-variable Common costs Cannot be traced to course groups 12,000 Rental costs $8,000 per month Indirect/Fixed Number of Space usage is a function of 12 student hours student's presence 96,000 13 Insurance costs $5,000 per year Indirect/Semi-variable Common costs Cannot be traced to course groups 5,000 Cleaning/maintenance requirements 3 hours per day * 365 days @ $20 Number of Cleaning & Maintenance per hour Indirect/Fixed student hours s a function of student's presence and usage of facilities 14 21,900 Advertising & Marketing Direct/Fixed Number of Can be translated to per student per 15 courses course 86,000 6 Total Indirect and Fixed Costs 264,900 17 Notes 18 The strategic goal of the institute is to increase the week-end customer base as they feel that it is an untapped market. 19 The fees for weekend courses can be increased and the companies can still afford it and there may be a cross marketing of the longer term courses. 20 Marketing and Advertising costs are approximately $1,000 per course offering * 86 course offerings during the year When they calculated the Advertising, Marketing & Promotional expenses for the week end programs, it worked out to be nearly $1,250 per week and course offering 21 and the balance was for the 4 week courses. 22 Communication and Insurance costs cannot be traced, accurately and therefore should be treated as common costs The following Fixed Costs (Depreciation; Utilities, Rental Costs and Cleaning & Maintenance) could be allocated based on the planned classes and/or student hours during 23 the year, as those seem to be plausible drivers. Thara fived carts should ha trastad with coma caution: thara carts could alea has fora not ralavant in catting the fans nar courca or Table 1 Table 2 Table 3 Table 4 + Ready + 100%*LBEC Data Tables(1) Q . Search Sheet + Home Insert Page Layout Formulas Data Review View X Cut Calibri (Body) * 12 . A- A Wrap Text General AutoSum AP. Copy Fill Paste Insert Format Merge & Center $ % 2 00 Conditional Format Cell Delete Format Sort & Formatting as Table Styles Clear Filter A3 X V fx Grocery, produce and other food items A B C E F G H 1 J K L M N Table 2 Costs Costs Heading Description Cost Type Activity Driver Remarks Annualised Cost Lunch & Refreshments $40 per day per student Direct/Variable Number of Only for weekend courses 6 students Number of Instructor's compensation $60 per instructor hour Direct/Variable instructional hours 20 Cooking stations; $5,000 Useful life 10 years; no salvage Indirect/Fixed Number of Depreciation is a factor of the extent B each value. Cost $100,000 student hours of student usage 10,000 Equipment/Cutlery, etc. for the cooking stations; $2,000 Useful life 10 years; No salvage Number of Depreciation is a factor of the extent value; Cost $40,000 Indirect/Fixed student hours of student usage each 4,000 Utilities $2,500 per month Indirect/Semi-variable Number of Utility consumption is a function of 10 student hours student's presence/usage 30,000 11 Communications $1,000 per month Indirect/Semi-variable Common costs Cannot be traced to course groups 12,000 Rental costs $8,000 per month Indirect/Fixed Number of Space usage is a function of 12 student hours student's presence 96,000 13 Insurance costs $5,000 per year Indirect/Semi-variable Common costs Cannot be traced to course groups 5,000 3 hours per day * 365 days @ $20 Number of Cleaning/maintenance requirements Cleaning & Maintenance Indirect/Fixed per hour student hours is a function of student's presence and usage of facilities 21,900 Advertising & Marketing Direct/Fixed Number of Can be translated to per student per 15 courses course 86,000 16 Total Indirect and Fixed Costs 264,900 17 Notes 18 The strategic goal of the institute is to increase the week-end customer base as they feel that it is an untapped market. The fees for weekend courses can be increased and the companies can still afford it and there may be a cross marketing of the longer term courses. 20 Marketing and Advertising costs are approximately $1,000 per course offering * 86 course offerings during the year When they calculated the Advertising, Marketing & Promotional expenses for the week end programs, it worked out to be nearly $1,250 per week and course offering 21 and the balance was for the 4 week courses. 22 Communication and Insurance costs cannot be traced, accurately and therefore should be treated as common costs The following Fixed Costs (Depreciation; Utilities, Rental Costs and Cleaning & Maintenance) could be allocated based on the planned classes and/or student hours during 23 the year, as those seem to be plausible drivers. These fixed costs should be treated with some caution; these costs could also be considered unavoidable and therefore not relevant in setting the fees per course or 24 student. 25 26 27 28 Table 1 Table 2 Table 3 Table 4 + Ready + 100%*LBEC Data Tables(1) Q . Search Sheet + Home Insert Page Layout Formulas Data Review View X Cut AutoSum Calibri (Body) 12 . A- A- Wrap Text General AP. Copy Fill Paste #+ Merge & Center $ % 2 00 Conditional Format Cell Insert Delete Format Sort & Format Formatting as Table Styles Clear Filter A3 x v fx Culinary Instructor's compensation C D F G H 1 J K L M N P Q Table 3 Cost per Student Unit Costs Cost Type Total Cost Remarks Culinary Instructor's 3 compensation 80,640 Instructor's compensation per hour = $60 60.00 Lunch & Refreshments (only for weekend courses) 48,000 600 students x 2 days x $40 per student 40.00 Course Material: 5 44,800 1,120 students * $40 per student 40.00 For 4 week courses: Grocery, Produce and other foo 260 students/course * 2 courses * 3 days * 2 hours * 4 weeks 6 items 124,800 * $10 per student/hour 10.00 For week end courses: 300 students/course * 2 courses * 2 days * 6 hours 36,000 $5/student/hour 5.00 8 Total costs 834,240 9 Total students 1,120 10 Cost per student 298.43 11 12 13 16 34 26 Table 1 Table 2 Table 3 Table 4 + Ready + 100%*LBEC Data Tables(1) Q . Search Sheet + Home Insert Page Layout Formulas Data Review View X Cut AutoSum Calibri (Body) * 12 . A- A Wrap Text General Copy Fill Paste BI UTY MA. # Merge & Center $ % 2 00 Conditional Format Cell Insert Delete Format Sort & Format Formatting as Table Styles Clear Filter F33 fx A D E F G H 1 J K L M N P Q R S T 1 Table 4 Le Bleu Ecole de Cuisine N Revenue / Profit Projections Juste pour le Le week- Groupe Classe fun (CSR) end Cours Jeune Chef Total cuisson rapide 5 Volumes: Culinary instructor hours 360 360 312 312 1,344 Expected student enrolments 300 300 260 260 1,120 Number of courses per year 30 30 13 13 86 10 Per Student: 11 Fee 399 399 399 399 12 Cost (Refer to Table 3) 298 298 298 298 13 Contribution 101 101 101 101 14 Contribution (%) 25% 25% 25% 25% 15 16 Total: $ $ 17 Revenue 19,700 119,700 103,740 103,740 446,880 18 Direct Cost 39,529 89,529 7,591 77,59 334,240 19 Contribution 30,171 30,171 26,149 26,149 112,640 20 Common Costs 21 Depreciation 14,000 22 Utilities 30,000 23 Communication Costs 12,000 24 Rental Costs 96,000 25 Insurance Costs 5,000 26 Cleaning and Maintenance Costs 21,90 27 Advertising and Marketing 86,000 28 Total common costs 264,900 29 Profit/(Loss) before taxes (152,260) 30 31 Approximate Revenue projected per student $ 399 32 33 34 35 36 37 38 39 40 41 Table 1 Table 2 Table 3 Table 4 + Ready + 100%
