IMA CASE STUDY

COMPETITION

SUBMITTED WITH THE PARTIAL FULFILLMENT OF IMA RULES AND

REGULATIONS
Introduction-
Angie Keller graduated college, she began talking with her family and best friends to help figure
out her career options. She had just delighted a large group of people with her delicious Peruvian
cuisine at her graduation party, so her first thought was to open a Peruvian restaurant. she was
aware of the challenges of running a restaurant, including the long hours and high failure rate.
After abandoning the idea of a restaurant, she began considering other food-service operations
such as catering or supplying specialty items, for example, appetizers or desserts.

But then she started her own venture of empanadas which was quite pleasing to her and she
faced various ups and downs which are discussed further.
Question 1:

Given Angie’s budget and profit goals, suggest which

metrics Angie should use to assess the success of her
new venture. Prices and costs are per tray, so use trays as
the basic unit when determining per-unit amounts.
The profit metrics that has been followed (Cost-Volume-Profit & Income
Statement) is categorised into “Fixed and Variable Cost”. As per the figures
mentioned in the table we have calculated “ Contribution per month” by
deducting ‘Total Variable Cost’ from ‘Sales’ i.e,
CONTRIBUTION = SALES - TOTAL VARIABLE COST
After calculating Net contribution margin, we have calculated Net Profit by
deducting (Variable cost + Fixed cost) from Revenue from Sales
NET PROFIT = SALES REVENUE - (FIXED COST + VARIABLE COST)
With this we assumed that the Break Even Point should also be taken in
consideration, which is calculated as:
BREAK EVEN POINT = FIXED COST / CONTRIBUTION PER UNIT
The metrics which used in matter is the Cost-Volume-Profit Analysis are
represented below
 April May June July August September Total
Sales Revenue $3,450 $3,910 $5,405 $7,728 $9,741 $14,835 $45,069
Price per tray $11.50. $11.50 $11.50 $11.50 $11.50 $11.50 $69.00
Trays Sold 300 340 470 672 847 1,290 3,919
Variable Cost
Ingredients $725 $901 $1,214 $1,760 $2,212 $3,255 $10,067
Labor $1,139 $1,290 $1,784 $2,550 $3,214 $4,896 $14,873
Trays $90 $102 $141 $202 $254 $387 $1,176
Utilities $21 $25 $33 $47 $59 $90 $274
Deliveries $315 $357 $494 $706 $889 $1,197 $3,958
Total Variable Cost $ 2,290 $2,674 $3,666 $5,265 $6,628 $9,825 $30,348
Contribution $1,160 $1,236 $1,749 $2,463 $3,113 $5,010 $14,721

Fixed Cost
Rent $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $6,000
Utilities $100 $100 $100 $100 $100 $100 $600
Deliveries $350 $350 $350 $350 $350 $350 $2,100
Total Fixed Cost $1,450 $1,450 $1,450 $1,450 $1,450 $1,450 $8,700
Net Profit $(290)* $(214)* $289 $1,013 $1,663 $3,560 $6,021

Table 1: Cost-Volume-Profit & Income Statement *-’( )’ - Indicates negative amounts

 Table 2: Break Even Point

Angie’s business has fixed costs of $8,700 per year, while the variable costs are $30,438
of total sales value. This would mean the contribution is 30.77%.
So, the company needs to sell goods worth $28,466 in order to achieve break-even
point. Anything beyond this point will constitute as profit, and if the company falls short of
this amount, the difference would be loss incurred.

Benefits of Break Even Analysis-

● Catching of missing expenses
● Revenue Targets
● Funding of Business
● Better Pricing
 April May June July August Sept Total

Sales per Tray $11.50 $11.50 $11.50 $11.50 $11.50 $11.50 $69.00

Variable Cost (per

tray)

Ingredients $2.41 $2.65 $2.58 $2.62 $2.61 $2.52 $15.39

Labor $3.79 $3.79 $3.79 $3.79 $3.79 $3.79 $22.74

Tray $0.30 $0.30 $0.30 $0.30 $0.30 $0.30 $1.80

Utilities $0.07 $0.07 $0.07 $0.07 $0.07 $0.07 $0.42

Deliveries $1.05 $1.05 $1.05 $1.05 $1.05 $0.93 $6.18

Total Variable $7.62 $7.86 $7.79 $7.83 $8.44 $8.23 $47.77

Cost

Contribution $3.88 $3.64 $3.71 $3.67 $3.06 $3.27 $21.23

Margin (per tray)

Contribution 33.74% 31.65% 32.26% 31.91% 26.60% 28.43% 30.77%

Margin
Table 3: Contribution Margin (in % & in $)
As, prices and costs are given per tray, so trays are used as the basic unit for
determining per unit amount . Sales per Tray is calculated as follows:

SALES PER TRAY = SALES REVENUE / TRAYS SOLD

And the value of sales per tray is $11.50 for each month is similar , let's take
values for the Month April : Sales revenue = $3,450 & Trays sold = 300

Sales per tray = 3,500/300 =$11.50

Next we have calculated Contribution Margin per tray by deducting Total

Variable Cost from Sales per tray for each month

CONTRIBUTION MARGIN(per tray) = Sales - Total variable Cost

Now, Contribution Margin in percentage is calculated with the help of contribution
margin per tray and Sales per tray.

Contribution Margin (in %) = (Contribution Margin per tray / Sales per tray)*100

For the month

April $3.88/11.50*100 =33.74%

May $3.64/11.50*100 =31.65%

June $3.71/11.50*100 =32.26%

July $3.67/11.50*100 =31.91%

August $3.0611.50*100 =26.60%

September $3.27/11.50*100 =28.43%

Question 2:

Analyze and compare Angie’s overall actual results with

her expected results to determine why her accountant is
concerned.
 Actual data Budgeted data Deviation %age
(1) (2) (2-1)=3 (3/2*100)
Total trays sold (in units) 3,919 3,919 - -

Sales revenue $45,069 $45,069 - -

Variable cost
Delivery 3,958 3,919 39 0.99%
Ingredients 10,067 9,465 602 6.36%
Labor 14,873 13,521 1,352 9.99%
Trays 1,176 1,176 0 -
Utilities 274 275 1 0.36%
Total Variable Cost $30,348 28,356 1,992 7.025%
Contribution Margin $14,721 $16,713 $(1,992) (11.91)%
Fixed cost
Rent $6,000 $6,000 0 -
Utilities $600 $600 0 -
deliveries $2,100 $2,100 0 -
Total Fixed cost $8,700 $,8,700 0 -
Net Income $6,021 $8,013 $(1,992) (24.85)%
Profit (in%) 13.359 17.779 (4.42) (24.85)%

Table 4: Comparative Analysis

In the above table, we have taken budgeted units equal to actual units so that deviation can
be found.
All the budgeted values have been taken in relation to the actual values based on the actual
number of units sold.

For instance: Ingredients charges for the budgeted units have been taken as follows:
Ingredients = budgeted ingredients / budgeted units * actual units
= 8091 / 3350 * 3919 = $9,465

After this , Contribution Margin has been calculated by deducting Sales Revenue from the
Total Variable Cost leading to a negative Contribution Margin deviation between Actual
Units and Budgeted Units i.e, $(1,992)
On the basis of above data net income has been calculated by deducting Total Variable Cost
and Total Fixed Cost from Sales Revenue and leading to a negative deviation between Actual
and Budgeted Net Income i.e, 24.85%
Reasons for Deviations Between Sales Revenue
and Total Variable Cost

● As we can analyse from the above table the main reasons for the
deviations are some of the factors from variable cost i.e cost of Labour
and Ingredients. The cost of Labour and Ingredients are increasing at the
rate of 9.99 % and 6.36%
● The cost of delivery is also increasing from 0.99%.
To decrease the labour cost Angie can divide labour in three categories-

Labour

Skilled Labour Semi-Skilled Labour Unskilled Labour

Unpaid Interns Cleaners

Cooks’

Maintenance Unit Sales Person Delivery Unit

Management Unit Security Guard Grocery Clerks

To Control the Ingredients cost , Angie should focus on reducing the wastage
while preparing the empanadas or she look for another vendors who can
supply her Raw Materials at lower rates.
Question 3:

Angie’s accountant recommended that your team drill

down further into the sales mix and cost figures to
determine how the different product types are affecting
profits. Look for any sales-mix issues and suggest
potential solutions.
 Vegetarian (10%) Chicken (43%) Beef (47%)
Trays Sold 392 1,685 1,842
Sales Revenue $4,508 $19,378 $21,183
Variable cost
Ingredients $496 $3,875 $5,719
Labour $1,487 $6,395 $6,990
Trays $118 $506 $553
Utilities $27 $118 $128
Delivery $396 $1,702 $1,860
Total VC $2,524 $12,596 $15,251
Fixed Cost
Rent $2,000 $2,000 $2,000
Utility $200 $200 $200
Delivery $700 $700 $700
Total FC $2,900 $2,900 $2,900
Total Cost $5,424 $15,496 $18,151
Profit( in $) $(916) $3,881 $3,032
Profit( in %) (20.318) 20.029 14.311

Table 5: Sales Mix

By drilling down further into the sales mix and cost figures, we have analysed that by
selling vegetarian empanadas , Angie is going into losses and chicken empanadas proves
to be the most profitable one with a profit margin of 20.03% followed by beef empanadas
with the profit margin of 14.31% .

In the above sales mix, vegetarian empanadas consist of 10%, chicken empanadas 43%
and Beef 47%.

The main area of concern for Angie Should be that , while selling vegetarian empanadas
she is not able to cover up the cost engaged in making empanadas and along with that she
has a low profit margin in selling price of vegetarian empanadas

Also the demand for vegetarian empanadas is quite low i.e, 10% in the sales mix ,with the
constant fixed cost (which does not vary with the level of output produced) and has to be
incurred irrespective of the level of output.
Other Potential Solutions-

Mixed Empanadas-

Angie is selling all the three types of empanadas at a same price. But cost of each type of tray is
different so, we suggest that the Angie should sell the three different type of trays at different price.
But another thing that Angie could do is to make mixed empanadas (like beef and potato). So that the
comparative cost could be reduced .

Changing Quantity-

The other thing that Angie could do is to reduce the size of empanadas and add two more empanadas
to the same tray by making total of 10 in the same tray with same cost instead of 8.

This will yield her more profit in the same cost.

Change in Selling Price-
As Angie is selling each type of empanadas at the same selling price i.e, $11.50

So she has to quote the prices accordingly for all different variety according to the cost.

for instance, by adding a desired profit margin percentage to the cost per tray.
Question 4:

Offer Suggestions for how Angie should Determine a

price quote (per tray) for the special-order customer.
Pricing Decision-
Pricing decisions are the choices businesses make when setting prices for their products or services.
Complex pricing is based on the originality of a product or service and what customers are willing to pay for it.

Organizations producing goods and services need to set the price for their product. Setting the price for an
organization's product is one of the most important decisions a manager faces. It is one of the most crucial and
difficult decisions a firm's manager has to make. Pricing is a profit planning exercise. Cost is one of the major
considerations in price determination of the product. It is one of the three major factors which influence pricing
decision. The two other factors are customers and competitors.
Factors influencing Pricing Decision
INTERNAL FACTORS EXTERNAL FACTORS

Cost Competition

Company Objectives Consumers

Image of the firm Government Control

Product life Cycle Economic Conditions

Credit period offered Channel intermediaries

Promotional activity
Objectives of Pricing Policy
1. Pricing the goods based on reasonable costs.
2. Increase the market share or growth rate at the expense of immediate profits.
3. Avoid adverse public reaction consequent on charging high price.
4. Ethical consideration not to reap high profit.
5. Immediate survival of the firm.
6. Charge reasonable price so as to have good relations with government and public at large.
7. Maximization of prestige of the firm rather than profit, and
8. To safeguard against the emergence of new producers in same line.
Rent
Utilities
Deliveries

Table6: Price Quotation

As per the requirement of the Special Order, Customer has demanded the
sales mix consisting of vegetarian empanadas at 40%, chicken empanadas
at 40 % and beef empanadas at 20%.

In this special order, customer has demanded a customized tray which cost
$0.75, whereas the regular tray which Angie use is $0.30

In addition to this , customer will pick up the trays from her kitchen itself ,
which means there would be No Delivery Charges.

So, we have quoted the price for the same by taking these things in
consideration and the price for special order customer is divided
differently for each type of empanada.
While quoting the price for the special order, Fixed Cost has been taken NIL
because Fixed Cost is not affected by the level of output.
But on the other hand , Variable Cost is affected by the level of output
While quoting the profit margin we have taken figures from the month of
September.
Profit margin is calculated as follows:

Profit % =Profit($) / Total Variable Cost

The profit % in Vegetarian empanadas has come out to be 31.37%, followed by

chicken at 40% and Beef at 30%
So the price that has been quoted are as follows:
Vegetarian empanadas at $7.742 per tray
Chicken empanadas at $9.953 per tray
Beef empanadas at $ 10.032 per tray
So the Total Cost for the Special Order has come out to be $454.22
How Angie’s can reach her target of $4000?

● Selling Price: Angie should change the selling price of each empanada according to
the Cost price of the empanada which would help her to increase the profits.
● Profit Margin: if the profit margin in selling Empanadas will be increased then
Angie could reach her target of $4,000 rapidly.
● Advertisement: Angie should promote her firm and empanadas to get new
customers. She could use newspaper, social media and emails for the promotions.
● Lucky 100th Customer : Angie could make her venture profitable by putting small
efforts of giving offers like the Lucky 100th customer where she will be providing a
free try to every hundredth customer.
● Workshops at nearby colleges: Angie could give workshop in the Hotel
management institutes located around her and can earn money from there to
reach the target of $4,000.
Question 5:

Offer suggestions to improve Angie’s operations and to

help her decide whether to continue the business and, if
so, how to grow it. Consider potential alternative
products, services, and marketing options.
Yes, Angie should continue her business- Various strategies to grow Angie’s business-

● Different product pricing

Angie should set up different product pricing for her empanadas as the cost of the empanadas which she
is producing differs from each other. Hence the first and major strategy of Angie should be to
differentiate the costs. (Product pricing mentioned before)

● Delivery Truck after she reaches her target

As per the mindset of Angie she wanted to start a delivery truck but we suggest her to do so as it is a
initial investment for her but she will have competitive advantage and her sales figure will start improving
which will eventually pay her in the future.
 Marketing Strategy
● Internet Marketing : Marketing campaign from Instagram, Whatsapp and Facebook
accounts.
● Guerrilla Marketing : Running awareness campaigns, alluring friends and indulging
people to share the awareness of Empanadas through word-of-mouth and sharing online
messages regarding it.
● Societal Marketing : Building an emotional connect with the customers by showing
humble concern towards them. Our USP of ‘DID YOU KNOW?’ facts helps us to build up
a trust with our customer.
● Print Media Marketing : Circulating our pamphlets in college campus and through local
newspapers in her region.
● SMS Marketing

DID YOU KNOW?

April 8th is National Empanada Day.
 Market Overview
● Simplicity in organization with innovation
01 STRENGTH ● Huge Demand
● Compassionate Owner

● Startup
● Competition with established food
02 CHALLENGE services
● People prefer junk food

● Expansion
● Low Operational Cost
03 OPPORTUNITY ● Awareness of people and Marketing
● Comparative cost

● Indirect threat from fast food chain and

04 THREAT restaurants
 ● Vending Machines

As the business area has university and colleges, So it is

advisable that she start vending machines for her empanadas
or she can tie-up with the university vending machines and
load empanadas in them which will increase her sales and
brand reputation.
 ● Food Truck

One of the major suggestion for Angie Business

is that she starts her own food truck which will
serve various purposes to her such as in built
kitchen which save cost and her business will
flourish,

● Going Digital

In the era of modernisation it is strongly

recommended to Angie that she creates her
online web portal where she can receive
demands and can take special orders.
 ● Innovation

Angie’s empanadas needs to have innovation by launching more product and services while studying the
market the conclusion can be drawn that there are other empanadas which are also in demand under the
area of business and she also add some drinks and beverages

1. Beef and potato empanadas.

2. Chicken enchilada empanadas.
3. Empanadas Mendocinas
4. Three sisters' empanadas
5. Mushroom and cheese empanadas
6. Empanadas de jamón y queso
7. Pumpkin cream cheese empanadas
8. Chocolate dulce de leche empanada
CONCLUSION
Hence, It can be stated that Angie’s can do various changes in her business so to flourish and improve her
profit margins. Hence, One of the things we suggest her is to do Price Alteration in the business so that
the prices for the different products can be managed as explained in the tables. Various marketing
strategies should be also introduced in the business which can help expanding her business;

As the business is located near the university so she may offer unpaid internships for students which will
serve the purpose for students for learning innovative things and will automatically help in Angie’s
business.

Finally, for the special order we have provided her suggestions above. We wish Angie’s Empanadas good
luck for her future ventures.