Question

Please show work

Business Description

A friend who is an excellent baker has decided to open a cupcake store to sell gourmet cupcakes. They have asked you if you will be interested in investing $50,000 for a 50% ownership interest. Using the skills you have developed in ACCT 551 Accounting for Managers, you will analyze the business to determine if you will invest in the company. The business is scheduled to launch on July 1, 2018. Your friend has provided you with the following cost information.

Anticipated selling price: $3.00 per cupcake

Cost information:

Cost of goods sold:

Ingredients are .25 per cupcake

Boxes and Cupcake Cups are .03 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 $100,000. 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 36 cupcakes per hour. Bakers are paid $18.00 per hour.

Store personnel are required for 56 hours per week and are paid $10.00 per hour.

Monthly rent, which includes utilities, is $1,200.

Business insurance is purchased at a cost of $750 per year.

Advertising costs are expected to be $5,000 per year.

Requirements:

Provide your answers for the following

For the following questions use the anticipated selling price of $3.00 per cupcake

Calculate contribution margin per cupcake and contribution margin ratio (10 points).

Calculate how many cupcakes need to be sold in order to break-even. Calculate how much sales in dollars are needed to break-even (10 points).

Prepare a cost/volume/profit chart (15 points).

Prepare the company’s forecasted income statement for the year ended on 6/30/2019 based on the sale of 36,000 cupcakes (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? (15 points)

Answer 1

Calculate the Contribution Margin and Contribution Margin Ratio,
Selling Price	$3.00
Less: Variable Costs
Ingredients	$0.25
Boxes and Cups	$0.03
Bakers Charges	$0.50
Contribution Per Unit	$2.22
Contribution Margin Ratio	74%

Computation of Breakeven Unit
Fixed Cost
Depreciation	$10,000
Store personnel Expense	$29,120
Rent	$14,400
Bisiness Insurance	$750
Advertising Cost	$5,000
Total Fixed Cost	$59,270
Contribution Per Unit	$2.22
Breakeven Units= Fixed Cost/ Contribution per Unit
= $59270/$2.22= 26698 Units.
Break Even Sales= 26698X $3= $80094

Statement Showing Forcasted Income Statement for sale of 36000 Unit
Particular	Per Unit	Amount
Sale Quantity		36000
Selling Price	$3.00	$108,000.00
Less: Variable Costs
Ingredients	$0.25	$9,000.00
Boxes and Cups	$0.03	$1,080.00
Bakers Charges	$0.50	$18,000.00
Contribution Per Unit	$2.22	$79,920.00
Less: Fixed Cost
Depreciation		$10,000
Store personnel Expense		$29,120
Rent		$14,400
Bisiness Insurance		$750
Advertising Cost		$5,000
Total Fixed Cost		$59,270
Net Income		$20,650.00