This was previously answered, but the intructor states they were wrong. I have put in parentheses the instructor feedback. I just need the answers corrected.

Question: ***Please show work*** Business Description A friend who is an excellent baker has decided to ope...

***Please show work***

Business Description

A friend who is an excellent baker has decided to open a cupcake store to sell gourmet cupcakes. They have asked you if you will be interested in investing $50,000 for a 50% ownership interest. Using the skills you have developed in ACCT 551 Accounting for Managers, you will analyze the business to determine if you will invest in the company. The business is scheduled to launch on July 1, 2018. Your friend has provided you with the following cost information.

Anticipated selling price: $3.00 per cupcake

Cost information:

Cost of goods sold:

Ingredients are .25 per cupcake

Boxes and Cupcake Cups are .03 per cupcake

Equipment that will be required to be acquired at the start of business includes ovens, racks, display case, counter, cash register, and other baking equipment and will cost $100,000. The equipment is expected to last 10 years without salvage value. Straight-line method of depreciation should be used.

On average one person can make, bake, and decorate 36 cupcakes per hour. Bakers are paid $18.00 per hour.

Store personnel are required for 56 hours per week and are paid $10.00 per hour.

Monthly rent, which includes utilities, is $1,200.

Business insurance is purchased at a cost of $750 per year.

Advertising costs are expected to be $5,000 per year.

Answer following:

If sales could increase by 10% (to 39,600 cupcakes), by how much in dollars would net operating income increase? By what percentage would net operating income increase? Use the formula for leverage to calculate (10 points). (Instructor feedback on why is was wrong: While you calculated the amounts, you did not use formula for leverage to calculate. Percentage increase in sales x leverage = increase in net operating income +8)

Calculate how many cupcakes need to be sold in order to make a $30,000 target profit for the year (5 points). (Instructor feedback on why is was wrong: Number calculated correctly based on your assumptions. Calculation should be (59270 + 30000)/2.22)

Prepare a cash budget for the companys first year of operations based on sales of 36,000 cupcakes. Assume all sales are cash sales and that all costs and expenses are paid in cash. Equipment will be purchased prior to the start of business using the investment of $50,000 plus the friends contribution of $50,000. Rent, insurance, and advertising costs will be paid on a monthly basis You decide to maintain a minimum cash balance of $5,000 (15 points). (Instructor feedback on why is was wrong: Wasn't completed.

***Previously answered deemed wrong my instructor****

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Calculations have been done assuming Sales for the period July 2018 to December 2018 - 6 months

		Scenario A	Scenario B
	No. of Cakes (from July to December)	36,000	39,600
	Sales (No of Cakes * Selling Price)	$108,000	$118,800
	Less:
	Cost of Goods Sold (No of Cakes *0.03)	$1,080	$1,188
	Wages (No of Cakes/36*18)	$18,000	$19,800
	Depreciaton on Equipment for 6 months	$5,000	$5,000
	[(100,000/10)/2)
	6 Months rent	$7,200	$7,200
	Business Insurance for 6 months	$375	$375
	Advertising Cost for 6 months	$2,500	$2,500
	Operating Profit	$73,845	$82,737
1	If Sales is increased from 36,000 to 39600 for 6 months, the Operating Profit will improve by
	82,737-73,845= $8,892
2	Operating Profit would increase by 12.04% (8,892/73,845)
3	In Order to make $30,000 profit in 6 months (July 2018 to December 2018), Contribution - Fixed Cost = $30,000
	therefore Contribution = Fixed Cost + $30,000
	Fixed Cost = Depreciation+Rent+Insurance+Advertisement
	=5000+7200+375+2500
	15,075
	Contribution = Contribution per unit * Number of Cakes
	Contribution per unit = Selling Price per unit - Variable Cost per unit
	Contribution per unit = 3-0.03-18/36
	Contribution per unit = 3-0.53=$2.47 per unit
	$2.47* Number of Cakes = 15,075+30,000
	Number of Cakes = [(15,075+30,000)/$2.47)
	18.249 Cakes

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Anonymous posted 12 hours ago Edit Delete

Answers were wrong/below is feedback. 11 While you calculated the amounts, you did not use formula for leverage to calculate. Percentage increase in sales x leverage = increase in net operating income +8 12 Number calculated correctly based on your assumptions. Calculation should be (59270 + 30000)/2.22 (same fixed costs and contribution margin as used in #7) +3 13 Incorrect (Cash Budget)