ACCT 1116 Accounting

Rob Lehnert has approached you, a management consultant, to evaluate the new venture of Café Xaragua for its projected profitability and cash flow management. In a group of 3-4 people, prepare a report for Café Xaragua. In your report:1.Categorize and make separate list of the start-upcosts, ongoing fixed and variable costsfor Café Xaragua. Fixed costs must be presented in the annual amount. Assume that Lehnert would be paid $35,000 for part-time management for Year 1. Capital assets can be depreciated over 10 years. Also prepare a list of the sales items and selling prices. 2.Prepare budget (annual) contribution marginincome statementsfor Year 1 and Year 2assuming 250 total daily drinks. Show detailed revenues for individual products and detailed variable and fixed costs information in the statements.3.Compute the break-even in sales revenuefor 2nd year for the company as a whole(including all products). Compute the margin of safety and MOS%. Interpret the numbers for Café Xaragua. What is the DOL for Year 2? Interpret the number.4.Other than the compensation for Lehnert as manager, the partners are expecting abefore-tax profit of $60,000. Calculate the sales revenue to achieve the target profit in Year 2. Comment on Café Xaragua’s ability to meet the target. 2 5.Are Lehnert’s sales estimates reasonable? Perform some sensitivity analysis. Redo required 2 by preparing annual income statement for Year 2 at a) 200 total daily drinksand b) 300 total daily drinks.6.Based on the profit projected in required 2 and 5, compute the return on investment(ROI) under the three scenarios for Year 2. Summarize your findings from required 2 – 6. Should Lehnert proceed with this venture based on the quantitative analysis? 7.Assume a July to June 12-month period, prepare a cash budget for the first year, by month and annual. Assume that the capital investments and other start-up costs would incur in the first month - July. Also assume that the sales volume in July and August would be only 50% of the average monthly forecast. All sales are cash sales. All purchases and operating expenses would be paid in the month of the purchase. Would the $250,000 loan be sufficient to cover the cash flow for the year? The company would be making monthly principal and interest payment for the loan starting July. Based on the cash budget, would the company be able to pay back the loan in 5 years?8.Perform a detailed internal and external analysis of Café Xaragua applying tools such as SWOT, PEST, etc. 9.Assess the profitability of regular drink, speciality drink, bakery items, and bagged coffee. Which products has the highest and lowest profitability? Assess the pricing strategy of Café Xaragua in the target market and present your observation10.What is your final conclusion and recommendations? What managerial issues should Rob Lehnert and his partners consider before starting Café Xaragua? Based on all the quantitative and qualitative analysis you have performed in the previous requirements, should Lehnert proceed with this venture