Question

Business Description

A friend, Jay Green, is considering opening a cupcake store to sell gourmet cupcakes. Jay has asked you to help with formulating the projected numbers for the business and help analyze if the company will be successful. Using the skills you have developed in ACCT 551 Accounting for Managers, you will analyze the business to determine if you will recommend to Jay whether or not to enter into the business venture. Jay plans to launch the business on January 1, 2020. Following is the cost information provided by Jay:

Cost information:

• Jay plans to hire a baker that will charge $12 per dozen cupcakes.

• Jay has found a location near downtown that may be rented for $900 per month.

• Utilities are estimated to be $150 per month.

• Fixtures for the business will cost $7,700 (depreciation will be $1,100 per year for 7 years)

• Jay plans to open the store 7 days per week from 10:00 AM until 6:00 PM. Sales people will be paid $10.00 per hour.

• Business insurance will be purchased at a cost of $750 per year. • Advertising costs are expected to be $3,600 per year.

• Jay will invest $10,000 to start the business.

Requirements: Using separate tabs in a spreadsheet, provide your answers for the following.

- Develop the annual cost formula in Y = a + bX format, i.e. Total Costs = Fixed Costs + (Variable Cost per Unit times number of units).

- You want to help Jay set a selling price for the cupcakes. Research who the competition is and at what price they are selling gourmet cupcakes (this will provide a base for a target price). Provide the detailed information for at least 3 competitors. Based on the projection of selling 21,000 cupcakes and an expectation of a 15% profit, what is the maximum cost allowable for all expenses? - Based on a selling price of $3.25 prepare a cost/volume/profit graph.

- Prepare a cash budget for the company’s first year of operations based on sales of 21,000 cupcakes at a price of $3.25 per cupcake. Assume all sales are cash sales and that all costs and expenses are paid in cash. Rent, insurance, and advertising costs will be paid on a monthly basis. A minimum cash balance of $2,500 should be maintained.

Answer 1

Baker Charges	12 per Dozen
Selling unit	21000
Dozens=	21000/12
=	1750
Baker Charges =	12*1750
=	9000
Rent	10800
Utilities	1800
Depreciation	1100
Salesmen cost	29200
8 hours per day
Business Insurance	750
Advertising cost	3600
Selling Price per cupcake	3.25
Total Selling Price	68250
Fixed Cost:
Rent	10800
Utilities	1800
Depreciation	1100
Salesmen cost	29200
Business Insurance	750
Advertising cost	3600
Total Fixed Cost	47250
Variable cost :
Baker Charges	9000
Total Variable Cost	9000
Selling price required =
let selling price be x
x*21000	fixed cost+variable cost +Profit
	47250+9000+15% of 21000*x
17850x	56250
x	3.151260504
Selling price per cup cake would be $3.15
*It is assumed that profit being 15% of selling price

Cash Budget
Cash inflow
Investment	10000
Sales	68250
Total Cash Inflow	78250
Cash Outflow
Purchase of fixture	7700
Rent	10800
Utilities	1800
Salesmen cost	29200
Business Insurance	750
Advertising cost	3600
Baker Charges	9000
Total Cash Outflow	62850
Net Cash Flow	15400