Managerial Accounting

Case Cafes Monte Bianco

By: Ibrahim Yousuf Petiwala
The case of Cafs Monte Bianco is an exercise in budgeting and profit planning, in the asked we
are asked to calculate the estimated profit and cash flows for the year ended December 2001 if
the company were to adopt a completely private label strategy. After calculations, I have come
up with the decision that the company should adopt the private label strategy.
Firstly I would like to clarify all the assumptions made:
Payments made to creditors after 30 days
Fixed Manufacturing Overhead figure given in Exhibit 3 includes fixed costs for
premium coffee as well; hence 781 Million were subtracted from the figure to achieve
actual Fixed Manufacturing Overheads for private labels only.
Fixed Manufacturing Overhead are allocated according to actual production in month
Selling and administrative Expenses are allocated evenly in all months
6,000,000 has been added to property, plant and equipment
Additional depreciation of 400,000 has been charged for new plant
An additional short term financing worth 7,510,000 has been taken by the company
There is no Inventory at the end of the year
Starting the analysis with the positive aspects of the shift, the expenses incurred by the company
will be significantly lower; the company incurred 17,972,361 instead of 19,635,820 incurred in
the previous year.
However, if we see the profitability of the company
To conclude my analysis, I would recommend that the company not shift their focus from
premium coffee to private brand. I say this after seeing the profitability and the cash flows of the
company. Although the cash flows of the company may improve, as the company has a large
accounts receivable, the 90 day credit period will force the company to use short term financing
to continue operations, this will increase the cost of capital of the company.