Not for nothing was Sophie Brazier, an acclaimed Michelin star chef. Coming from a family of culinary experts dating back three generations, it was Sophie's great grandmother who was an inspiration behind her great grandfather becoming a famous chef during a time when women were hardly recognized in this profession. Sophie was not only a great chefbut also had the rare ability to share her knowledge and skills by training young budding cooks.

One fine spring morning, in April 2020, from her beautiful waterfront home in Montreal, when the world was crippled due to the COVID-19 pandemic, Sophie started to formalize her longtime dream of setting up a culinary institute to offer various courses to train and improve participants' culinary skills. She took some notes on the type of courses that she might be passionate about and in a moment of creative flourish, coined a name for the institute (Le Bleu Ecole de Cuisine) and also some names and descriptions for the cooking courses she wished to offer (Table 1). One of her broad strategic goals is to bring cooking to the corporate world and to the community. She wished to offer week-end courses to employees to learn healthy cooking, while also having fun. She also wished to offer a similar program for the young kids and community at large, which potentially could bring back the health and fun element to cooking. She deeply detested the fast food culture and held the view that it was singularly responsible for many modern-day malaises. Her mission was to bring the joy of delightful cooking and mindful eating back into everyone's lives.

Over the next couple of weeks, she held web-conferences with her tax accountant and shared broad details about the type of courses on offer, in terms of its duration, scheduling, and so on (Table 1). She also carried out extensive research to come up with an estimate of costs with the help of her tax accountant (Table 2). She realized that not all of these costs may be applicable for all courses that she intended to offer, however being unsure how to organize those costs and revenues to calculate profitability, she relied on her tax accountant. She did place a higher emphasis on Advertising/Marketing costs with a greater focus on Corporate clients and Community/Young weekend participants. She was also particular that cleaning and maintenance be carried out throughout the year to maintain good hygienic discipline. Since she wanted to make this affordable to most participants, she was keen to peg the fees at $399 per participant, as course fees. Thereon she commissioned her tax-accountant to estimate the profitability of the institute and if possible, individual courses.

Sophie's tax-accountant reverted in a week's time and reported a broad summary of operations and profitability (Table 4) and a cost per student (Table 3). In his calculations, although the individual courses looked profitable with a positive contribution margin, overall LBEC was projected to make a loss of C$ 152,260.00 in the first year of operations.This unnerved her no end.Despite the fact that Sophie was passionate about cooking and sharing her skills, she was not yet ready to make such a significant investment of her personal time and resources for a loss-making operation. Her conversations with the tax accountant was not enlightening or encouraging either. For example, she was not sure why the accountant combined many of the costs as common costs ($264,900) and not related it to the individual course groups. She also felt that the cost per student ($298) across all the courses, did not appear right. That is when she remembered her dearest high school friend, Sonu Mani, who herself went on to become a meritorious CPA graduate and now a senior partner with one of the Big 4 firms. She immediately got on phone with Sonu, who was enjoying a bit of respite amidst her radically changed schedule due to the COVID-19 pandemic. It was now left in Sonu's safe hands to save Sophie's worthy culinary institute!

Table 1 - Culinary courses

Name

Targeted market Segment

Duration

Duration details

# of courses planned per year

# of students per course

Juste pour le fun (CSR)

Fun (team building) cooking lessons for organizations and its employees as part of their CSR initiative

Weekends

2 days a week/ 6 hours a day

30

10

Le week-end

Cours

Lessons for young kids/community members who are learning how to cook, with a focus on healthy meals

Weekends

2 days a week/ 6 hours a day

30

10

Jeune Chef

Individual lessons for professionals/semi-professionals who aspire to become better rated chefs

4 weeks

3 days a week, 2 hours a day

13

20

Groupe Classe -cuisson rapide

Group lessons for amateur groups, who wish to enroll together as friends/family and learn some quick cooking skills for everyday meals

4 weeks

3 days a week, 2 hours a day

13

20

Table 2 (Costs)

Costs heading

Description

Cost Type

Activity driver

Remarks

Grocery, produce and other food items

For 4-week courses, per student/per hour $10

Direct/Variable costs

Number of students

Grocery, produce and other food items

For weekend courses, per student/per hour $5

Direct/Variable costs

Number of students

Course Materials

For all courses, $ 40 per student

Direct/Variable costs

Number of students

Lunch & Refreshments

Per day per student, $40

Direct/Variable costs

Number of students

Only for weekend courses

Instructor's compensation

Instructor's compensation details: per instructor hour, $60

Direct/Variable costs

Number of Instructional hours

20 Cooking stations

$5000 each; Useful life 10 years; No salvage value. Cost $100,000

Indirect/Fixed Costs

Number of student hours

Depreciation is a factor of the extent of student usage

Equipment/Cutlery, etc. for the cooking stations

$2000 per cooking station

Indirect/Fixed Costs

Number of student hours

Depreciation is a factor of the extent of student usage

Utilities

$2500 per month

Indirect/Semi Variable

Number of student hours

Utility consumption is a function of students' presence/usage

Communication Costs

$1000 per month

Indirect/Semi Variable

Common costs

Cannot be traced to course groups

Rental Costs

$8000 per month

Indirect/Fixed Costs

Number of student hours

Space usage is a function of students' presence

Insurance costs per year

$5000

Indirect/Fixed Costs

Common costs

Cannot be traced to course groups

Cleaning & Maintenance

3 hours per day; 365 days @ $20 per hour

Indirect/Fixed Costs

Number of student hours

Cleaning/maintenance requirements is a function of students' presence and usage of facilities

Advtg/Mktg

Marketing and Advertising costs are approximately $1000 per course offering or $86000 per year

Direct/Fixed Costs

Number of courses which can be translated to per student

See note below

Note: The strategic goal is to increase the demand for week-end courses as it is yet an untapped market; The fees for such courses can also be increased and there may be cross marketing opportunities of the 4-week courses. Hence Advtg/Marketing & Promotional expenses for the weekend programs (on subsequent verification, after the tax accountant finalized the projections) may work to be nearly $1250 per weekend course offering, and the balance can be allocated for the 4-week courses

Table 3 (Cost per student calculations)

Cost heading

Dollar amount

Remarks

Culinary Instructor's compensation

80,640

Per instructor hour = $60

Lunch & Refreshments(only for weekend courses)

48,000

Per students $40 >> 600 students * 2 days * $40 = $48,000

Course Materials

44,800

Per student = $40>>1120 students * $40

Grocery, Produce and other food items

160,800

For 4-week courses, per student/per hour $10 >> 260+260 students * 3 days * 2 hours *4 weeks* $10

For week-end courses, per student/per hour $5>> 300+300 students * 2 days * 6 hours * $5

Total

$334,240

Number of students

1120

Cost per student

$298

Table 4 (Revenue/Profitability projections)

Le Bleu Ecole de Cuisine

Revenue / Profit Projections

Juste pour le fun (CSR)

Le week-end

Cours

Jeune Chef

Groupe Classe

Total

Volumes:

Culinary instructor hours

360

360

312

312

1,344

Expected student enrolments

300

300

260

260

1,120

# course offerings per year

30

30

13

13

86

Per Student:

Fees

$399

$399

$399

$399

Cost (Refer Table 3)

298

298

298

298

Contribution ($)

$101

$101

$101

$101

Contribution (%)

25%

25%

25%

25%

Total:

Contribution

$30,171

$30,171

$26,149

$26,149

$112,640

Common Costs

Depreciation

14,000

Utilities

30,000

Communication Costs

12,000

Rental Costs

96,000

Insurance Costs

5,000

Cleaning and Maintenance Costs

21,900

Advertising and Marketing

86,000

264,900

Profit (loss) before taxes

$(152,260)