QUESTION 4 (30 marks)

Lisa has just completed her Diploma in Bakery and Confectionery at a local TAFE. Since then she has been working at a local bakery chain as a trainee pastry chef. Lisa has now completed the apprenticeship and is looking to make a new start on her own.

She has recently secured a lease of house in a hillside suburb of Cairns. She was attracted to the house as it featured a small commercial kitchen containing a woodfired oven & shopfront area.

As the house is zoned semicommercial, Lisa has found that she can obtain a licence to bake 380 loaves per day. The shopfront is just large enough to display 15 loaf shelves shelf. The remaining loaves are kept in cooling shelves within the baking area.

Lisa has learned at TAFE and came to know about an Ancient Grains Recipe. This recipe was used by the royal cook in Ancient Egypt to bake delicious bread only from flour. Also, during her time as a trainee pastry chef she has gained in-depth knowledge about flour. Because the ancient recipe only produces bread with flour as its only ingredient, it is very healthy and additive free.

Lisa has read from a reliable market research report and that demand for healthy, additive free pastry is very promising. She would like to capitalise her special knowledge and brand it for this niche market. She plans to create three types of specialty breads, Sourdough, Kamut, and Rye. Table below is her estimate sale price, cost and demand of each bread type.

	Bread Type
	Sourdough	Kamut	Rye
Estimated sale price	$4.50	$4.0	$4.5
Variable costs:
Flour	$0.95	$0.85	$0.95
Other costs	$0.30	$0.30	$0.65
Labour	$1.00	$0.25	$0.50
Minimum quantity	100	100	50
Maximum quantity	300	300	150

She likes to explore on the profitability and percentage of return of this opportunity as the option of working for herself is very appealing. Besides the variable cost, there is a fixed cost of $150 per day (e.g., electricity and water, wages, and rental payment) and a 28% tax rate. In addition to profitability, she is aware of other opportunities and threats.

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Formal Exams BX2016 SP52, 2020

1. (a) Propose a model world for Lisa so she could better understand her business. State the purpose of your model and its assumptions. (6 marks)