Question

please solve the requirements 1 to 4 using this data. thanks

Daisy, a friend who is an excellent baker, has decided to open a cupcake store to sell gourmet cupcakes. Daisy has asked you if you will be willing to loan the company $50,000 at an interest rate of 4% that will be paid back over 5 years. You will analyze the business to determine if you will loan Daisy the money. The business is scheduled to launch on January 1, 2019. Daisy has provided you with the following cost information. Cost information: Cost of goods sold: a. Ingredients are .30 per cupcake b. Cupcake Cups are .01 per cupcake Daisy has found a fully equipped commercial kitchen near downtown with a store front that will be rented for $1,000 per month. Utilities will be $125 per month. On average one person can make, bake, and decorate 36 cupcakes per hour. Bakers are paid $18.00 per hour. A worker will be needed for the store front to sell the cupcakes. Daisy plans to open the store 7 days per week from 11:00 AM until 7:00 PM. Sales people will be paid $9.00 per hour. Business insurance is purchased at a cost of $750 per year. Advertising costs are expected to be $3,600 per year.

TOTAL VARIABLE COST: $1.15

TOTAL FIXED COST: $17,850.00 Y = $17,850.00 + $1.15X

Contribution Margin $48,000

Contribution Margin Ration: $58.18% BEP: 11,156 Units

BEP $: $30,679

1. Describe the variances that Daisy should analyze to monitor the business. 2. Provide at least 4 metrics that Daisy could include to monitor the business using a balanced scorecard approach. 3. If Daisy decides to expand her business by investing in her own equipment, which capital budgeting model would you recommend? Why? 4. Will you lend $50,000 to Daisy to start her business? Based on the calculations performed explain why or why not .

Answer 1

variable cost per cupcake

ingredients = 0.30

cup cake cups = 0.1

direct labour = 0.5 ( 18 wages / no of cupcakes produced in a hour)

total variable cost = 0.9 per cupcake

fixed cost per year

Rent = 1000* 12 = 12000

utilities = 125* 12 = 1500

insurance = 750

advertisement = 3600

manning labour = $9 per hour * 8 hrs each day * 365 days = 26280

Total = $44,130

annual cost formula

Y = 44130+0.9x where x is the no of cupcakes produced & Y is the total revenue from selling x cupcakes

Answer to part 5

Let us assume the selling price of each cupcake is x

sale of 30000 cupcakes

revenue = 30000 x

cost = 30000*.9 = 27000

profit required is 15% of cost = .15* (27000+44130) =10669.5

therefore revenue = cost + profit

30000x = 27000+44130=10669.5

x= 2.72665

if we assume 15% profit on sales then

30000x - 0.15*30000x = 27000+44130

25500x= 71130

x= 2.789