GOODIEBOX BAKERY “GoodieBox” is an “at home” bakery located in the town of Bloom
ID: 2491181 • Letter: G
Question
GOODIEBOX BAKERY
“GoodieBox” is an “at home” bakery located in the town of Bloomsburg, Pennsylvania.
GoodieBox specializes in beautifully iced, mini cakes (personal size.) The bakery was
started four years ago by Pat Taylor, a Bloomsburg University Business Management
student. Pat started the bakery to earn a little extra cash for college expenses.
Pat’s idea for the mini cake was not planned. In fact, Pat was planning to bake a
birthday cake for one roommate, Terry, when the realization occurred that there were
not enough ingredients to make a full-size cake. Rather than getting in the old beat
up Honda Accord and running to Weis Markets for more ingredients, Pat decided to
bake a “mini cake” for Terry. Using an empty coffee can as the cake pan, Pat whipped
up the first “mini cake” Well, Terry loved the cake so much, and told all friends, who told
all their friends, and, well, you can imagine how GoodieBox’s mini cakes became a very
popular item among the college cake-loving crowd!
For the past four years, Pat has been using the kitchen in the Bloomsburg apartment to
bake scrumptious, beautifully iced, mini cakes. However, Pat recently graduated from
Bloomsburg University and is now contemplating doing this as a full-time job, possibly
opening up a “brick-and-mortar” business somewhere in the Bloomsburg area.
As a consultant to Pat, you need to help with this decision. To assist you, please read
and then provide a response to the following questions
ACCOUNTING/FINANCE/OPERATIONS COMPONENT
Pat finds a location for GoodieBox. It’s a corner property on Main Street that has been
recently refurbished with an attractive store front and a modern kitchen in the rear. The
property may be leased for $1,500 each month; utilities are included. Considering
experience with GoodieBox, Pat believes that a mini cake will sell for $8.00 and each
cake costs approximately $3.00 to make.
1. How many mini cakes must Pat sell each month to “break even” assuming that
the only fixed cost for GoodieBox is the monthly lease amount? Please refer to
pages 203 and 204 in text.
2. On the second floor of the corner property, there is a small apartment where Pat
may live for only $250 month, utilities included, with the stipulation that
GoodieBox leases the first floor. How many cakes must Pat sell each month to
cover business and living costs? (Hint: In your calculation, consider the $250 as
an additional fixed cost)
3. As a full-time student, Pat was able to sell approximately 50 cakes each month
through the apartment-based, word-of-month operation. Based on your
responses above, list the factors Pat should consider in the evaluation of the
reasonableness of selling the amount of cakes from your answer to #2 above
each month.
4. List at least five fixed and variable costs that you, as a consultant, recommend
Pat investigate.
5. List at least three sources of financing Pat should consider, and the
advantages/disadvantages of each.
INTERRELATIONSHIP OF BUSINESS AREAS COMPONENT
Pat decided to hire a full-time employee who happens to be a relative. Describe at least
two ways that this decision will affect the following areas within GoodieBox. Since
change impacts all areas of a business, be sure your response is consistent among all
areas.
• Accounting
• Finance
• Operations
• Ethics
• Marketing
• Technology
• Management
As Pat's business consultant, what is your recommendation to Pat whether to pursue
this as a full-time job and open a "brick-and-mortar" business in Bloomsburg? Explain
your response.
Explanation / Answer
1) Selling price per cake 8 Variable cost per cake 3 Contribution per cake 5 Fixed cost 1500 Break even point = Fixed cost / contribution per cake = 1500 /5 = 300 cakes 2) Selling price per cake 8 Variable cost per cake 3 Contribution per cake 5 Fixed cost ( 1500 + 250) 1750 Break even point = Fixed cost / contribution per cake = 1750 /5 = 350 cakes 3) The requirement to break even is 350 cakes , whereas the cakes sold are only 50 , there is a big difference of 300 cakes. This difference is huge and will not be feasible to cover in the near future based on the sale startegy of apartment based and word to mouth operations These numbers can only be reached if an aggressive marketing and sales strategy is followed for which additional expense would need to be met Hence , as per the current acenario it does not seem possible to meet the break even point number 4) 1) Raw material cost for cake variable 2) electricty and utilities cost variable 3) rental cost fixed 4) employee cost fixed 5) baking moulds cost fixed 6) delivery cost variable 7) inventory cost variable 8) storing cost for baked cakes fixed 9) display cost fixed 10) marketing and advertising cost fixed 5) Sources of financing 1) Bank loan Advantage One time amount available and can be utilised as per the requirement of business Disadvantage Difficult for a new business to get as past performance is not available for review Interest cost is high as interest os paid on total loan 2) Credit limit Advantage 1) Amount can be used as per the requirement of the business 2) Lower interest cost as interest charged and paid only on the amount utilised Disadvantage Difficult for a new business to get as past performance is not available for review 3) Bringing in partners/ shareholders Advantage 1)Interest free money as no interest needs to be paid 2) Losses get shared in case of partnership Disadvantage 1) Difficult to get people to invest if the venture is not profitable 2) Profits get shared and decision making becomes difficult as more people get involved Interrelationship of Business areas components When Pat hires a full time employee who is a relative , it effects the business in many ways 1) It is important to know the strengths of the person , because he may not be able to handle all the aspects of the business . He may be good in marketing but may not know Finance and accounts Hence making one person who is a relative responsible for the entire operations may not be wise. Many aspects of the business may get affected 2) As he will be a relative of Pat , Pat will be trusting him completely and giving him control which he may not give to an employee who is not a relative. Thod could work both ways , the relative may take advantage of the situation or on the other hand run the business like his own and help to improve the bottom line of the business A a consultant , I would not recommend Pat to open the " Brick and Mortar" business in Bloomsburg as a full time job because the sales in that area do not commensurate with the expenses of the business. And the sales increase in the near future may not cover the expenses.hence the venture will incur substantial losses for some time hence opening this venture in Bloomsburg is not recommended
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