Question

In: Accounting

Three years ago, Vincent Chow completed his college degree. The economy was in a depressed state...

Three years ago, Vincent Chow completed his college degree. The economy was in a depressed

state at the time, and Vincent managed to get an offer of only $25,000 per year as a bookkeeper. In

addition to its relatively low pay, this job had limited advancement potential. Since Vincent was an

enterprising and ambitious young man, he instead started a business of his own. He was convinced

that because of changing lifestyles, a drive-through coffee establishment would be profitable. He

was able to obtain backing from his parents to open such an establishment close to the industrial

park area in town. Vincent named his business The Cappuccino Express and decided to sell only

two types of coffee: cappuccino and decaffeinated.

As Vincent had expected, The Cappuccino Express was very well received. Within three

years, Vincent had added another outlet north of town. He left the day-to-day management of each

site to a manager and turned his attention toward overseeing the entire enterprise. He also hired an

assistant to do the record keeping and other selected chores.

REQUIRED

a. Develop an organization chart for The Cappuccino Express.

b. What factors can be expected to have a major impact on the success of The Cappuccino

Express?

c. What major tasks must Vincent undertake in managing The Cappuccino Express?

d. What are the major costs of operating The Cappuccino Express?

e. Vincent would like to monitor the performance of each site manager. What measure(s) of

performance should he use?

f. If you suggested more than one measure, which of these should Vincent select if he could use

only one?

g. Suppose that last year, the original site had yielded total revenues of $146,000, total costs

of $122,000, and hence, a profit of $24,000. Vincent had judged this profit performance to

be satisfactory. For the coming year, Vincent expects that due to factors such as increased

name recognition and demographic changes, the total revenues will increase by 20 percent to

$175,200. What amount of profit should he expect from the site? Discuss the issues involved

in developing an estimate of profit.

Solutions

Expert Solution

A) The organisation chart should be a Managing Director i.e Vincent Chow himself, below him two managers each one handling one store. A Chef and a number of waiters working under the guidance of the manager.

B) The major factors which can impact the success of The Cappuccino Express are- Quality of the product offered, the pricing of the product, competition in the market and the service quality of the staff of the Store.

C) The quality of the Cappuccino depends upon the quality of the coffee beans used . Vincent Chow should undertake the purchase of the Coffee Beans and it's quality as this is the most crucial part for the success of the store.

D) Major costs for operating The Cappuccino Store are Cost of Coffee Beans, salary of the Managers and the waiters and the rent of the place if not owned.

E) Vincent can make some profit linked controls and the can take a control on the consumption of the coffee beans.

F) He should take first the consumption control seriously as the major part of operating costs is the consumption of the Coffee Beans.

G) The profit should increase more than 20% as the fixed costs of rent and salary have already been recovered and with the increase in sales only the consumption of the coffee beans will increase and hence increasing the overall profitability percentage. The breakup of the costs is not given hence it cannot be predicted which costs will increase with the increase of sales and which cost will remain fixed.


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