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.

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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.

Prepare a cost/volume/profit chart.

Prepare the company’s forecasted functional income statement for
the year ended on 6/30/2018 based on the sale of 40,000
cupcakes.

Prepare a contribution format income statement assuming sales of
44,000 cupcakes.

If sales could increase by 10% (to 44,000 from 40,000 cupcakes),
by how much in dollars would net operating income increase?
Use operating leverage to calculate the percentage increase in
operating income?

Sales Price $3.41

Ingredients $0.35

Boxes & Cups $0.05

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