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(Answered)-I need help on page 3 question 8 and 9 under the Alternative 1


I need help on page 3 question 8 and 9 under the Alternative 1 Requirements. Please show the work and explain how you found the answer. Thank you.


ACCT 102

 


 

Group Project

 


 

The Great Tamale

 

Best friends, Nathan and Cody, decided to start their own business

 

which would bring authentic Mexican food to their local communities. Together

 

they have started the Great Tamale, a food cart. Nathan is the chef, having

 

spent considerable time studying Mexican cuisine abroad. Cody takes the

 

orders and manages the business operations.

 

Thanks to an appearance on the Food Network, the Great Tamale food

 

cart has experienced a phenomenal first year. In its first year of operations the

 

company sold 31,125 plates of food and had the below sales and cost figures.

 


 

Sales

 


 

$217,875.

 

00

 


 

Variable costs

 


 

46,687.50

 


 

Contribution margin

 


 

171,187.5

 

0

 


 

Fixed costs

 


 

90,000.00

 


 

Income before taxes

 


 

81,187.50

 


 

Income taxes (32% rate)

 


 

25,980.00

 

$

 

55,207.50

 


 

Net income

 


 

The best friends worked tirelessly in their first year of operations and

 

know that another challenging and competitive year lies ahead of them. Now

 

entering their second year of operations, they are considering two alternatives

 

and have hired your consulting group, known for its inventive business and

 

accounting consulting work, to help them make some important business

 

decisions.

 


 

1

 


 

ACCT 102

 


 

Group Project

 


 

The Great Tamale

 

Alternative 1- Food Truck

 

After experiencing such great success with their food cart, Nathan and

 

Cody are considering purchasing a food truck to serve other communities.

 

This would allow the Great Tamale, GT, to reach even more customers in

 

different geographic locations.

 

There would be an increase in the selling price per plate. There will also

 

be an increase in the fixed costs of $30,000 for advertising to inform the public

 

of this change (this amount is already included below under Food Truck data).

 

The financial information is presented below for this alternative as well as the

 

original data. Assume 31,125 plates are sold for the food cart and 45,625

 

plates are sold for the food truck.

 


 

Food Cart

 


 

Food Truck

 


 

Sales

 


 

$

 

217,875.00

 


 

$365,000.0

 

0

 


 

Variable costs

 


 

46,687.50

 


 

103,437.50

 


 

Contribution margin

 


 

171,187.50

 


 

261,562.50

 


 

Fixed costs

 


 

90,000.00

 


 

147,500.00

 


 

Income before taxes

 

Income taxes (32%

 

rate)

 


 

81,187.50

 


 

114,062.50

 


 

25,980.00

 

$

 

55,207.50

 


 

36,500.00

 

$

 

77,562.50

 


 

Net income

 

Required:

 


 

1.) Compute the company's contribution margin under both scenarios, if GT

 

decides to remain a regular food cart and if they decide to become a

 

food truck. Compute the contribution margin both in total dollars and

 

per unit.

 

2.) Compute the company's contribution margin ratio under both scenarios.

 

(Note: Do not round the CMR for accurate calculations in the following

 

questions).

 


 

2

 


 

ACCT 102

 


 

Group Project

 


 

3.) Compute the break-even point in sales dollars under each scenario.

 

How many plates will need to be sold under each situation to breakeven?

 


 

3

 


 

ACCT 102

 


 

Group Project

 


 

Alternative 1 Requirements (continued)

 


 

4.) If the company wishes each scenario, food cart and food truck, to

 

generate target income of $250,000, what is the amount of sales that

 

needs to be generated? How many plates will then need to be sold?

 

Prepare a contribution margin statement for this step and verify that

 

your income before taxes is $250,000 (after-tax net income in fact

 

equals $170,000 at a tax rate of 32%) for both the food cart and food

 

truck.

 

5.) Assume that the company expects sales to decline by 20% next year.

 

There will be no change in plate price. Prepare forecasted financial

 

results for next year following the format of the contribution margin

 

income statement as shown above with columns for each of the two

 

types (assume a 32% tax rate, and that any loss before taxes yields a

 

32% tax savings).

 

6.) Assume that the company expects sales to increase by 20% next year.

 

There will be no change in plate price. Prepare forecasted financial

 

results for next year following the format of the contribution margin

 

income statement as shown above with columns for each of the two

 

types (assume 32% tax rate, and that any loss before taxes yields a

 

32% tax savings).

 

7.) Thinking about sales, is there any day of the week or time of day when

 

greater sales are expected? Which type is more sensitive to this

 

occurrence? Which type is less sensitive to this occurrence? Which

 

type is more advantageous and why? Is there anything else the

 

company can do to manage the decline in sales that come with certain

 

days and times?

 

8.) How do you recommend the company use the $30,000 advertising

 

budget available under this scenario in order to achieve a maximum

 

effect on their target audience?

 

9.) Compute the Profit Margin and Return on Assets for each scenario

 

assuming average total assets of $500,000. Industry averages are 20%

 

and 10% respectively.

 


 

4

 


 

ACCT 102

 


 

Group Project

 


 

The Great Tamale

 

Alternative 2 - Restaurant

 

Nathan and Cody notice there is stiff competition in the food cart and

 

food truck industries and therefore are considering opening a traditional

 

restaurant.

 

Opening a restaurant would have many advantages and disadvantages, the

 

company can expect fixed costs to increase by $125,000 a year to cover rent,

 

equipment, furniture, salaries and other costs.

 

This alternative is exclusive of alternative 1 -so use the original financial

 

information from page 1 (also shown below) to calculate the effects of opening

 

a restaurant.

 


 

Sales

 


 

$217,875.

 

00

 


 

Variable costs

 


 

46,687.50

 


 

Contribution margin

 


 

171,187.5

 

0

 


 

Fixed costs

 


 

90,000.00

 


 

Income before taxes

 


 

81,187.50

 


 

Income taxes (32% rate)

 


 

25,980.00

 

$

 

55,207.50

 


 

Net income

 


 

Additional Information:

 

This alternative would allow GT to increase their plate prices to $14.50

 

and would increase the variable cost per unit by $2.50. Assume plate sales

 

remain at 31,125.

 

1.) Compute the company's new contribution margin under this alternative.

 

Compute the contribution margin both in total dollars and per unit.

 

2.) Compute the company's contribution margin ratio under both scenarios.

 

(Note: Do not round the CMR for accurate calculations in the following

 

questions).

 

3.) Compute the break-even point in sales dollars under each scenario.

 

How many plates will need to be sold under each situation to breakeven?

 


 

5

 


 

ACCT 102

 


 

Group Project

 


 

Alternative 2 Requirements (continued)

 


 

4.) If the company wishes each scenario, food cart and restaurant, to

 

generate target income $250,000, what is the amount of sales that

 

needs to be generated? How many plates will then need to be sold?

 

Prepare a contribution margin statement for this step and verify that

 

your before tax income is $250,000 (after-tax net income in fact equals

 

$170,000) for both the food cart and restaurant.

 

5.) Assume that the company expects sales to decline by 20% next year.

 

There will be no change in plate price. Prepare forecasted financial

 

results for next year following the format of the contribution margin

 

income statement as shown above with columns for each of the two

 

types (assume a 32% tax rate, and that any loss before taxes yields a

 

32% tax savings).

 

6.) Assume that the company expects sales to increase by 20% next year.

 

There will be no change in plate price. Prepare forecasted financial

 

results for next year following the format of the contribution margin

 

income statement as shown above with columns for each of the two

 

types (assume 32% tax rate, and that any loss before taxes yields a

 

32% tax savings).

 

8.) Identify at least two advantages and disadvantages of having a brickand-mortar restaurant versus a food truck.

 


 

9.) Thinking about sales, is there any day of the week or time of day when

 

greater sales are expected? Which type is more sensitive to this

 

occurrence? Which type is less sensitive to this occurrence? Which type

 

is more advantageous and why? Is there anything else the company

 

can do to manage the decline in sales that come with certain days and

 

times?

 

10. ) Since no advertising budget is available under this alternative, what

 

are some creative and low-cost methods the company could employ to

 

help advertise the change to a restaurant?

 

11.) Compute the Profit Margin and Return on Assets for each scenario

 

assuming average total assets of $900,000. Industry averages are 15%

 

and 7% respectively.

 


 

6

 


 

ACCT 102

 


 

Group Project

 


 

The Great Tamale

 

Conclusion

 

Comparing your calculations from alternative 1 and alternative 2 -which

 

does your group recommend for the business owners? Why? The company

 

can only pick one of the alternatives, due to the time and resources

 

involved, so you will need to make a compelling case to support your

 

decision. Be sure to identify the demographics and any other assumptions

 

used in your analysis.

 


 

Project Requirements

 

1.) Written Report -formal written report stating your group's choice for

 

either alternative 1 or 2. The report should be a minimum of 3 pages,

 

maximum of 5 -double spaced and be structured accordingly:

 

i.

 

ii.

 

iii.

 

iv.

 

v.

 


 

Introduction ?provide an overview of the current situation, the

 

alternatives available, and the demographics for the business

 

location your group has selected.

 

Alternative Choice & Justifications ?state the alternative your

 

group chose and cite the financial or qualitative reasons behind

 

your choice. Please cite outside sources appropriately.

 

Advantages & Disadvantages ?address the advantages and

 

disadvantages (both quantitative and qualitative) of both

 

alternatives.

 

Recommendations ?provide any advertising or other business

 

recommendations to the company to help them succeed in their

 

implementation of the new alternative.

 

Summary ?summarize your stance and key points.

 


 

2.) Calculations/Responses ?your group?s calculations and responses for

 

alternatives 1 and 2 should be typed and neatly presented behind your

 

report as appendices. Work must be shown for calculations in order to

 

receive full credit (Excel is recommended).

 


 

7

 


 

 


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