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…
4) Should the partners open the Café? Explain why or why not?
Assuming the average expectation on sales (250 drinks, 50% regular, 50% specialty, 125 baked goods, 25 coffee bags) the cafè will keep losing money. However they could be probably able to increase their drinks prices by 1 $ (both regular and specialty), being still below the average 5.25$ of the competition (Starbucks). The projected operating income would be 46127.50 $ the first year, 64127.50$ the second year. They could also reduce the staff wages, which are extremely higher than the average and represent 36% of revenues). Reducing wages from 16$/h to 13$/h the projected operating income would be 13927.50 $ first year, 31927.50 $ second year. Applying both the price increase and the wage decrease we can project an operating income of 83927.50 $ first year and of 101927.50 $ second year. I recommend to review pricing and staff wages, then open the cafè. [144 words]
5) If the partners open the Café and the first year's return on investment is a