QUESTION 1 50 points Save Answer La Boulangerie is a profitable family bakery business with a long standing reputation. The business was founded in 1989, Hugo Bernard took over the management of the business in 2010 from his father Paul. Although the business is performing very well, and the products are popular in the locality, Hugo realises the business must seek new opportunities. Following some initial research Hugo has decided to pursue the idea of opening a snack counter. He already has a vacant premises very close to a schaal which Hugo sees as a good opportunity. To progress this idea, Hugo has decided to keep it quite simple and offer a panini & drink combo deal. Based on this research the tourist trade in the summer should compensate for the school being closed, 50 monthly sales are expected to be relatively consistent. As this is a family business, Hugo is effectively CEO, marketing and aperations manager. However, the analysis needed to determine if the snack counter is viable is beyond his limited accounting experience. He has therefore contacted you, as an employee of Mayne Consulting Ltd, to objectively evaluate the proposed new venture and get back to him with your findings and recommendation Hugo has provided you with the following year 1 forecast information for your analysis: Table 1: Snack Counter Feasibility Data Panel A: Forecasted sales and marketing data Panin & drink combo deal First year sales volume (units) 80,000 Selling price 64.85 Panel B: Forecasted raw material food costs Average cost of panini filling 1.92 Average cost of drink 30.40 Average cost of panini 20.30 Panel C: Forecasted additional costs Packaging costs per panini 20.20 Packaging costs per drink 10.36 Salary casts per month 4,100 Sundry expenses per month 1,900 Annualrent of premises 24,000 Advertising expenses per annum 15,000 Panel D: Forecasted chocolate cupcake information (relevant for requirements (c) & (d)) Anticipated sales volume (units) ha.co Selling price per cupcake 0.98 Raw material cost per cupcake 20.07 Packaging costs per cupcake 10.13 Requirement: a. Prepare a statement for the first 12 months of the business setting out the expected total revenue, total contribution and total profit. Ignore the option of selling cupcakes (Panel D). Note: It is not required to show this on a month by month basis. (8 marks) b. Calculate the breakeven point (in units and ) and the margin of safety % for the Year 1 forecast. Ignore the option of selling cupcakes (Panel D). (10 marks) c. La Boulangerie may consider introducing a chocolate cupcake in addition to the panini & drink combo deal. Using the information in Panel D, calculate the revised breakeven point and the margin of safety % for the year 1 forecasts using the weighted selling price and weighted average contribution per unit. (12 marks) d. Based on your analysis in parts a), b) and c), prepare a report in which you: i. Explain the usefulness of cost volume profit analysis techniques in helping Hugo reach a decision about the snack counter proposal, including the limiting assumptions that he should be aware of; ii. Explain and interpret your calculations and analysis in parts (a), (b) and (c) in a manner that is useful for someone with a very limited accounting knowledge; iii. Highlight key insights emerging from the analysis that will be helpful to Hugo, in particular is it worthwhile to introduce the cupcake product? iv. Provide a recommendation to Hugo. (14 marks) e. What other factors should Hugo consider before reaching a decision? (6 marks)
