Project Orientation and Overview

You have inherited some unique pretzel recipes from your European ancestors, and are considering starting a new business with these recipes. You have some savings you are willing to invest, but in order to start this business, you will also need a bank loan. As part of your loan application, the banker will want to see a summary business plan, including a master budget for the first three months of operations.

Your task for this Final Project is to prepare all documents necessary to present to the bank. This Project has four parts:

Part 1: Mission Statement and cost analysis,

Part 2: Budgets, Financial Statements, and Analysis,

Part 3: Budget Data Analysis and Transmittal Letter,

Part 1: Mission Statement and Cost Analysis,

• Review the following chapters:

o Chapter 18: The Changing Business Environment: A Manager's Perspective
o Chapter 19: Cost Concepts and Cost Allocation
o Chapter 23: Cost Behavior Analysis

• Complete the Mission Statement Template Handout to describe your pretzel company, its mission, and its featured product. Also complete the short-answer questions included in the Template.

• Submit the completed Mission Statement Template Handout to "My Assignments" in MyWest.

• Use the tables and information in Exhibit 1 of these instructions, calculate the costs to produce your pretzels, and a break-even analysis. These analyses are to be completed on the first page of the Final Project Template provided.

o Calculate total variable costs per dozen pretzels.
o Calculate sales price per dozen pretzels using a 120% markup on variable costs (100% markup means the selling price is double the cost)
o Calculate contribution margin per dozen pretzels.
o Calculate the breakeven point, in dollars and units, for the quarter (three months)

Part 2: Budgets, Financial Statements, and Analysis,

• Review Chapter 24: The Budgeting Process.

• Use the tables and information presented in Exhibit 2 on the next page to determine production and financial budget data.

• Complete the remaining sections of the Final Project Template provided. The Template includes the following budgets:

o Sales budget/cash collections budget
o Direct materials purchases budget/cash disbursements budget
o Manufacturing overhead budget
o Operating expenses budget

• Complete the sections of the Final Project Template to show your cash requirements, projected income and financial position:

o Cash budget
o Pro-forma income statement
o Pro-forma balance sheet

• Assume that you are asking for a $75,000 from the bank on January 1 to help launch your new business. Include interest expense for the bank loan in both the cash budget and income statement. Additional information about the proposed bank loan is in Exhibit 2.

• Respond to the following short answer questions using a word processing program:

o Discuss the importance of beginning the master budget process with an accurate sales budget.
o What are some important factors that a manager should consider when developing a sales budget? State why each is important.
o Distinguish between operating expenses and disbursements for operating expenses.
o What is the main difference between the variable and absorption income statements?
o What are the major benefits of budgeting?

Part 3: Budget Data Analysis and Transmittal Letter,

• Write a transmittal letter to a banker explaining why the bank should approve your loan request, and include your analysis of the budget data you created in Week 6.
• Your transmittal letter and analysis should include, at a minimum, the following information:
o A brief description of your new business, its products and targeted customers
o A summary marketing plan
o The amount of funding you are seeking, and how you will use the funds
o An analysis of how your company will perform financially for its first quarter of operations if you receive the loan
o A projection of how your company will perform in future periods, and when and how the bank loan will be repaid

Mission Statement

Name of the company: Elsa's Pretzel Delight

Vision:
• Make the Best Tasting Quality Pretzels
• Promise to Deliver Exceptional Customer Service
• Be Recognized as a Leader Among Our Industry

Core Competencies:
• Produce Great Tasting Pretzels
• Know Our Customers
• Consistent Top Quality Ingredients

Pretzel Recipe: Yields One Dozen
• 1 Tablespoon Yeast
• 1 Tablespoon Sugar
• 2 cups Warm Water
• 5 Cups Flour
• 1 Tablespoon Salt
• 1 Egg
• 1 Cup Oil

Description of Primary Customers:
• Hungry Mall Shoppers

Short Answer Questions:

• Exhibit 1 on the ACC 302 Final Project Handout presents your expenses in the categories of raw materials, manufacturing overhead, and operating expenses. What factors make each of the categories different? Also, list the types of cost that your company will classify as overhead.

Raw Materials - These are the ingredients that go into making the pretzels, i.e. flour, sugar, yeast, butter, eggs, etc.

Manufacturing Overhead - These are materials that cannot be exactly traced back to the product but are necessary to run the business. Some of the costs that my company will list as overhead include:

• Utilities
a. Water
b. Electricity
c. Property Taxes
d. Insurance
e. Phone Bill
f. Internet Bill

• Indirect Materials and Labor
a. Labor to input all ingredients into machines
b. Labor to move pretzels from between areas - production area to sales area, etc.
c. Labor to inspect pretzels

• Maintenance
a. Keep machines running
b. Repairs

• Depreciation
a. Building depreciation
b. Equipment depreciation

• Supervision

Operating Expenses - These are the costs associated with running the business.

• Exhibit 1 on the ACC 302 Final Project Handout also indicates which costs are fixed and which costs are variable. For each expense listed, indicate why it would be categorized as fixed or variable.

Variable Costs - Costs that change as volume of goods sold changes

a. Utilities - The more/less pretzels you make the more/less electricity, water, etc. you will use and the utilities price will vary.

b. Other Indirect Materials and Labor - This will change based on number of pretzels made and sold. One example is in regards to labor the more pretzels you sell the more hours you will need to pay of work (hourly salaries). Thus, the cost will vary (overtime, more part time help, etc.).

c. Sales Commission - The more/less product you sell the more/less commission will be paid. Commission will vary depending on goods sold.

d. Shipping Costs - The cost will vary depending on the production of the goods.

Fixed Costs - Costs that remain constant within a particular time period

e. Maintenance - Maintenance cost will have to be done regardless of the volume of goods sold.

f. Depreciation - Depreciation occurs even if volume increases or decreases. Depreciation is a constant occurrence.

g. Supervision - Supervision will be paid regardless of the volume of goods sold.

h. Salaries - Salaried Employees - will be paid regardless of the volume of goods sold. You could stop producing pretzels for one week but the salaries will still be paid.

i. Other - All other fixed costs for example rent, loan payments, insurance premiums, etc. This cost happens regardless of the volume of goods sold.

• What is sensitivity analysis? How does the use of spreadsheets aid in the application of sensitivity analysis?

A sensitivity analysis is basically a "what if" scenario that will give a company its net income based on the number of sales being increased or decreased (Sensitivity Analysis, 2015).

The use of spreadsheets allows the company to forecast various scenarios quickly by applying formulas to increase or decrease the % of sales per expense line item and provide the net income based on that particular scenario.

Attachment:- Assignment.xls