Yogi Bubble Tea

You recently graduated with a business diploma. During your tenure as a student, you were one of the many college students who were die-hard fan of the "Bubble Tea" trend. You and most of your college friends consume bubble tea at least twice a week.

The "Bubble Tea" market has grown at an exponential rate the last two years. One of the reasons is that it was perceived as a healthy lifestyle drink compare to ice blended coffee served in lifestyle caf.

Recently studies shown that the high sugar content in bubble3 tea product out-weight the health benefit of tea in bubble tea drinks. These have caused concerns to many die-hard bubble tea customers. Recently, there is a sharp decline in the growth rate of bubble tea market. Many bubble tea outlets closed down and many more are expected to close in the future.

Recently, you and family went on vacation to Australia and you observed that the bubble tea trend is alive and thriving, especially the yogurt based bubble tea, which is supposed to be healthier than regular milk/sugar based bubble tea.

Right after graduation you are contemplating to start a small yogurt-based bubble tea outlet targeting college students. You decided to do some market research and the main focus of your research is to find out whether the business can survive, at least in the short run (1 year). Due to lack of funds, you decided to rent all the equipment and not to invest "hard cash" in capital expenditure (equipment):

The following were forecasted cost and market information gathered during your research.

Cost information:

Fixed operating expenses per month: Monthly rental RM4,000

Helper salary RM3,000

Depreciation expenses RM1.500

Electricity expenses RM500

Wireless internet RM150

Advertising expenseRM500

Budgeted raw material per unit*:

Tapioca balls RM1.00

Tea leaves RM0.75

Yogurt RM1.25

Sweetener/flavour RM1.00

Packaging/cup RM0.50

Market information:

• Bubble tea trend is slowing down due to the negative publicity about the excessive sugar used.
• Economy seems to be picking up
• Current and new potential customers might be looking for a healthier alternative.
• The business expects customers are willing to pay RM9.00 for a cup healthier yogurt based bubble tea.

Further research indicated that expected sales for the first three months of business are as follows:

January February March April May June

Expected sales (units) 1,200 1800 2400 ? ? ?

Other Information:

The first three (3) months sales are expected to growth at an abnormal rate due to new unique offering in the bubble tea segment. Sales are expected to slow down and sales are expected to grow at a constant rate of 10 percent from April onwards.

Required: [ Show the calculation and formula so i can more understand, thank you :) ]

A.Determine the monthly expected sales for the period January to June.(1 mark)

B.Due to fluctuating expected sales, you are concern that you will run short of products for sale on a daily basis. To ensure every customer will never be turn away due to shortage of finish goods, you plan to produce 10% more each day than the daily expected sales. Assume 30 day month and you open for business every day.

Prepare daily production budget (only need to do the first 2 days and last 2 days of the month) for the period January to June. (4 marks)

C. Prepare weekly raw material purchase budget:(4 Marks)

In order to maintain freshness of the final product, raw material purchases on a weekly basis.

Need to maintain 10% (weekly sales need) raw material inventory at all time.

D. Prepare weekly raw material purchase payment schedule/budget:(2 Marks)

Payment will be paid a week after the purchase date.

E.Prepare cash budget on a monthly basis.(5 Marks)

Additional information:

Started with initial $1,000 cash

Raw material purchase payment schedule - purchases are paid in full before the next purchase.

100% ofsales are cash sales

At any one time your business must have a cash balance of $500

If there is a cash deficit, the company can borrow the bank at 12% interest per year. Interest will paid on a monthly basis and interest incurred for the month will be paid the following month.

F.Prepare monthly Pro forma Income Statement for the period January to March. (4 Marks)