Problem

The purpose of this case study is to help you integrate the managerial accounting concepts that were covered in class and apply them to a real-world business setting.

Business Description

You will assume the role of an entrepreneur to start 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 July 1, 2017.

Cost information:

Cost of goods sold:

Ingredients are .35 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 $150,000. 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 8 dozen (96) cupcakes in an 8 hours shift. Each worker is paid $10 per hour.

Sales personnel are required 56 hours per week and are paid $8 per hour.

Monthly rent, which includes utilities, is $1,500.

Business insurance is purchased at a cost of $2,000 per year.

Advertising costs are expected to be $12,000 per year.

5. Calculate the total amount of cash that will be needed at the start of the business in order to buy all necessary equipment and machines and cover the first three months of fixed expenses.

This amount will be your initial investment in the business.
Note that the equipment will be paid in full on the first day of business.

6. Develop a price using a target price (what do you think a customer will pay for one of your cupcakes? Provide support for your target price.