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APA
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Business & Marketing
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Case Study
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English (U.S.)
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Topic:

Strategies in Evaluating Allocated Cost to Products to Improve Business

Case Study Instructions:

Unit I Case Study

 

Read the following case study:

Motivated by his ambitions and previous work in coffee shops, Angelo is moving to Barrow, Alaska, to open a shop he has named Alaska Coffee. Angelo intends to sell coffee, espresso, and a couple of food items. He has signed a lease for a shop on one of the main streets and is moving in. His parents fronted him the cost or actual items of furniture and utensils, and he acquired some donated items, so he will not have to count these items in his cash accounting. Angelo is nearly ready to start selling coffee!

Angelo notes that he has the following fixed costs that he does have to count:


  • $1200/month for employees, totaled up, and

  • $1500/month lease, insurance, state, and borough fees.

Angelo figured he would allocate these fixed costs to his products in the same proportion that they provided revenue as shown in this table:


ITEM

PRICE SOLD / UNIT

VARIABLE COST / UNIT

% REVENUE

Coffee

$2.00 / cup

$ 0.25 / cup

75%

Espresso

3.00 / small cup

0.50 / small cup

15%

Scones

4.00 / ea.

2.00 / ea.

5%

Bear Claws

1.50 / ea.

1.00 / ea.

5%

 


 


 


As you can see, local demand and the cost of acquiring supplies and ingredients from a store in the Arctic drives Angelo’s accounting. The coffee is the thing for him! However, the other items are selling as well.


Angelo asks a visiting family member to prepare a report for him that answers the questions below.



  • With the way Angelo has the fixed cost proportioned out by 75%, 15%, 5%, and 5% for each of the four items for sale, what is the break-even point of sales of each item for him in a month?

  • What would the total sales figure for the shop be at the break-even point?

  • What, if anything, should Angelo do to improve his business?

Prepare the report as instructed in a response of at least three pages. Be sure to research at least two-three sources to support your ideas and integrate the sources in APA-formatted citations and matching reference lists. Additionally, use Times New Roman 12pt. double-spaced font.

Course Textbook(s)

Render, B., Stair, R. M., Jr., Hanna, M. E., & Hale, T. S. (2015). Quantitative analysis for management (12th ed.). Upper Saddle River, NJ: Pearson.

Criteria Achievement Level Level 1 Level 2 Level 3 Level 4 Level 5Analysis (40 points) 0-23  Presents an account containing little analysis or relevant argument; interpretation is not well supported. Course concepts and analytical tools are not applied appropriately. 24-27  Presents an account that is descriptive but contains little analysis or relevant arguments; interpretation is not well supported. Course concepts and analytical tools are not applied appropriately. 28-31  Presents an analysis containing relevant arguments; interpretation is not thoroughly supported and not compelling. Course concepts and analytical tools are sometimes applied appropriately. 32-35  Presents a thorough analysis with effective arguments; interpretation is both reasonable and compelling. Course concepts and analytical tools are often applied appropriately. 36-40  Presents an insightful and thorough analysis with strong arguments and evidence; interpretation is both reasonable and compelling. Course concepts and analytical tools are expertly applied.Content (35 points) 0-20  Content is often irrelevant; information may be noticeably incorrect and/or off-topic. 21 -24  Content is somewhat relevant and informative; may stray off topic a few times. 25-27  Content is mostly relevant and informative; may stray off topic one or two times. 28-31  Content is relevant and informative; may stray slightly off topic one time. 32-35  Content is highly relevant and informative; remains on topic.Accuracy (15 points) 0-8  Most of the assignment is clearly inaccurate and lacks attention to detail. 9-10  Several areas of the assignment may be slightly lacking in accuracy and/or attention to detail. 11 -11  Most of the assignment is fairly accurate and shows fair attention to detail. 12-13  Most of the assignment is accurate and shows good attention to detail. 14-15  Accuracy is excellent and close attention to detail is clearly evident in all parts of the assignment.Writing Mechanics (10 points) 0-5  Writing lacks clarity and conciseness. Serious problems with sentence structure and grammar. Numerous major and/or minor errors in punctuation and spelling. 6-6  Writing lacks clarity and/or conciseness. Contains minor problems with sentence structure and some grammatical errors as well as several minor errors in punctuation and spelling. 7-7  Writing is mostly clear and concise. Sentence structure and grammar are strong and mostly correct. There may be 3 or 4 minor errors in punctuation and/or spelling. 8-8  Writing is clear and concise. Sentence structure and grammar are strong. There may be 1-2 minor punctuation errors and/or spelling errors. 9-10  Writing is clear and concise. Sentence structure and grammar are excellent. Correct use of punctuation. No spelling errors.

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Case Study Sample Content Preview:

Unit 1 Case Study
Author’s Name
Institutional Affiliation
Table of Content
TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc26384610 \h 32. Break-Even Point of Sales for Products of Alaska Coffee Shop PAGEREF _Toc26384611 \h 33. Total Sales Figure for Alaska Coffee Shop PAGEREF _Toc26384612 \h 44. Recommendations to Improve Business PAGEREF _Toc26384613 \h 45. Conclusion PAGEREF _Toc26384614 \h 5References PAGEREF _Toc26384615 \h 7
Unit 1 Case Study
1. Introduction
Organizations need effective strategies for the evaluation of allocated costs to products. Management also needs to identify the products that generate the highest percentage of profits and revenues. More financial capital needs to be invested in products with the highest profit margin. The break-even point for every product in the portfolio should be calculated to identify the revenues necessary to cover the total amount of variable and fixed expenses. Owner, Angelo has opened a new shop in Alaska named as Alaska Coffee. The report presents the break-even point of sales for each product of Alaska Coffee and total sales figure for the shop at break-even point is also calculated. Based on the analysis in the report, recommendations are given to improve the business in future.
2. Break-Even Point of Sales for Products of Alaska Coffee Shop
The total fixed costs are $2700 ($1200 + $1500). The value of $2700 is allocated to products according to the percentage of revenues generated.
Table 1: Break-Even Point of Sales for Each product
Products

Percentage of revenue

Fixed cost of products

Sale price per unit

Variable cost per unit

Contribution margin

Break-even point of sales

1. Coffee

75%

$2700 * 75%= $2025

$2.00

$0.25

$1.75 or 87.5%

$2025/ 87.5%
= $2314.3

2. Espresso

15%

$2700 * 15%= $405

$3.00

$0.50

$2.50 or 83.33%

$405 / 83.33%
= $486

3. Scones

5%

$2700 * 5%= $135

$4.00

$2.00

$2.00 or 50%

$135 / 50%
= $270

4. Bear Claws

5%

$2700 * 5%= $135

$1.50

$1.00

$0.50 or 33.33%

$135 / 33.33%
$405

The above table indicates that coffee product consumes the highest fixed cost of $2025 followed by espresso, scones and bear claws. A coffee product is also generating the highest contribution margin of 87.5% followed by espresso margin of 83.33%, scones margin of 50% and bear claws margin of 33.33%.
3. Total Sales Figure for Alaska Coffee Shop
The total sales figure is calculated by multiplying the units of products at the break-even point with products prices.
Products

Fixed costs

Contribution margin

Units at break-even point

Units * Products price

Products sales

1. Coffee

$2025

$1.75

1157 units

1157 units * $2

$2314

2. Espresso

$405

$2.50

162 un...
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