Budgeting and management control systems Individual assignment #1 – Matteo Ambrogini CASE: Cafè Xaragua
Questions 1) Prepare a forecast for the first year of operations using the information provided in the case. Clearly identify your assumptions.
See the frame used to analyze the case in Exhibit 1, the forecast in Exhibit 2, a breakdown of costs calculations in Exhibit 3, a breakdown of “Equipment & Fixture” costs and time allocation of all fixed costs in Exhibit 4. ASSUMPTIONS MADE (refer to the framework shown in exhibit 1 to identify each element: Price, Quantity, Fixed costs, Variable costs): General Assumptions: I assumed the cafè to stay opened 50 weeks, 350 days per year. Price: All data available from the case. No assumptions…show more content… With this set of assumption, we get a loss during first year of 56372.50 $. Running the simulation with 200 drinks sold (worst case scenario) we get a loss of 133635.50 $. If we run the simulation with the best case scenario option: 300 drinks, we obtain an EBT of 20890.50 $. The second year of activity the amounts are raising by a total of 18000.00 $, which represents those expenses occurring only once. Break Even point could be reached first year with the amount of 288 drinks sold, keeping prices constant. [149 words]
3) Assuming a 15% operating income return target on the beginning investment, what sales level is needed to hit this target?
Operating Income = Sales – Operating costs [OPI = S – OPC] We want: OPI = 0.15 * S So: 0.15*S = S – OPC So: 0.85*S = OPC But: S = Price1*Quantity1 + Price2*Quantity2 + Price3*Quantity3 + Price4*Quantity4 [P1*Q1 + P2*Q2 + P3*Q3 + P4*Q4], where 1,2,3,4 are respectively: Regular drink, specialty drink, baked good, coffee bag. With the assumption of 1 customer per drink sold, we also know that: Q1 = Q2 = Q3 = 5*Q4 (data from the case) Therefore: (P1+P2+P3+0.2*P4)*Q1*0.85 = OPC So: (3+4+2.5+0.2*16.5)*0.85*Q1 = OPC
10.88*Q1 = OPC But: OPC = Fixed(day) + Variable(day) = 1172 + 0.2*P1*Q1 + 0.2*P2*Q2 + 1.25*Q3 + 0.4*P4*Q4 = 1172 + (0.6+0.8+1.25+1.32)*Q1 = 1172 + 3.97*Q1 So: OPC = 1172 + 3.97*Q1 Substituting in the previous equation: 10.88*Q1 = 1172 +