You will assume the role of an entrepreneur starting a small company. Your company will produce and sell gourmet cupcakes through a storefront in a location of your choice. Your business is scheduled to launch on January 1, 2018.
Cost information:
Cost of goods sold:
Ingredients are .30 per cupcake
Boxes and Cupcake Cups are .05 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 $140,000. 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 24 cupcakes per hour. Bakers are paid $15.00 per hour.
Sales personnel are required for 56 hours per week and are paid $10.00 per hour.
Monthly rent, which includes utilities, is $1,500.
Business insurance is purchased at a cost of $1,000 per year.
Advertising costs are expected to be $6,000 per year.
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Develop a price using a target price (what do you think a customer will pay for one of your cupcakes? What are other companies charging for gourmet cupcakes?) Provide support for your target price (10 points).
Based on the sale of 36,000 cupcakes during the first year of business, calculate the margin of safety and the operating leverage for the business. What do these figures tell you about how risky the business is?
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
You will assume the role of an entrepreneur starting a small company. Your company will produce and sell gourmet cupcakes through a storefront in a location of your choice. Your business is scheduled to launch on January 1, 2018.
Cost information:
Cost of goods sold:
Ingredients are .30 per cupcake
Boxes and Cupcake Cups are .05 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 $140,000. 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 24 cupcakes per hour. Bakers are paid $15.00 per hour.
Sales personnel are required for 56 hours per week and are paid $10.00 per hour.
Monthly rent, which includes utilities, is $1,500.
Business insurance is purchased at a cost of $1,000 per year.
Advertising costs are expected to be $6,000 per year.
--------------------------------------------------------------------------------------------------------------------
Develop a price using a target price (what do you think a customer will pay for one of your cupcakes? What are other companies charging for gourmet cupcakes?) Provide support for your target price (10 points).
Based on the sale of 36,000 cupcakes during the first year of business, calculate the margin of safety and the operating leverage for the business. What do these figures tell you about how risky the business is?
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
