;CASE

What is a business? -Ready made frameworks- Five forces, SWOT framework,

PEST framework

AJ (Ajinkya Nalavde), an MBA candidate at HEC Paris (2019-2021), decided to take up his
MBA project through an affiliation with a start-up called Flash Coffee.
Flash Coffee strives to be a fully tech-enabled coffee chain i.e., it aims to ensure mobile
ordering for pick-up & delivery and have various loyalty programs customized for each
consumer in its own app. It is funded by companies such as Rocket Internet, Flash Ventures
etc. The main value proposition of the company is to make high quality coffee accessible to
all at an affordable price. The coffee menu of Flash Coffee has been curated by World Latte
Art Champion Arnon Thitiprasert and Indonesian Latte Art Champion Robby Firlian. Flash
Coffee started its operations in Jakarta, Indonesia in January 2020 and then launched in
Bangkok, Thailand in April 2020. Recently the company also launched 2 new stores in
Singapore in October 2020.The company plans to open around 150 stores across the entire
APAC region by end of 2021 and beyond.
AJ was directly reporting to Amy (Regional Head of Strategy) and helping her devise
strategies to successfully scale-up the venture in Southeast Asia. Since Flash Coffee has both
digital as well as brick and mortar components at the very core of its business model, it
enabled AJ to explore challenges associated with both digital scaling as well as brick and
mortar scaling of the business. The advent of the COVID-19 pandemic in 2020, also helped
him study the effect of such a pandemic on scaling-up and to explore certain strategic pivots
that the company could take to survive and potentially thrive.

a) What factors can be expected to have a major impact on the success of Flash Coffee in
the future?- Use framweworks Ready made frameworks- Five forces, SWOT
framework, PEST framework: Competitors, labor shortage, demand for substitute
products(tea, etc), prices of real estate, inflation, beans, milks, technology costs, Import
costs, Purchasing power
b) What tasks will Amy and AJ have to undertake in managing Flash Coffee’s business?
Value chain frameworks, Business Model canvas, For startups, check lean canvas,
the Mckinsey 7S framework: Scaling the business both online and offline without
cannibalizing the business, market study, maintaining customer satisfaction while
scaling, managing costs, managing financing, hiring, real estate management
c) What are the major costs of operating the business?- 1)Cost of goods sold-Direct
cost(beans, etc), Direct lBOUR, MAINTENANCE COSTS-Overhead, depreciation,
electricity. 2) 2 Types of employees, daily wage(workers) and HQ(salaris of HQ) 3)
Coffee machine cost- Depreciation cost 4) Delivery cost and marketing cost
Divide all of this in fixed and variable costs
Types of costs Classification
1) In response to changes in activity- Variable Costs and Fixed Costs

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 2) Product/services: Direct Costs(direct material, direct labour) and Indirect
Costs(manufacturing overhead)
3) Product Costs(direct material and direct labor) and Period costs(selling nd admin
costs)
d) Amy and AJ want to monitor the performance of the staff in the HQ as well as of the
store managers. What measure or measures of performance could they use? KPI(Key
performance indicators): 1) Delivery time, 2)coffees/day to estimate peak hours,
3)customer satisfaction: reviews from apps, retention rate and acquisition costs. 4) Sales
revenue.
Frameworks to use: Object of control framework: 1) Results controls, 2) Action
controls, 3) Input controls, 4) Cultural controls
e) Flash Coffee was approached by a Singapore-based producer of cakes who wants to sell
his chocolate cakes in Flash Coffee stores. Since the staff in the coffee shops often has to
work overtime, Amy wonders whether she should replace the inhouse prepared chocolate
cakes with those of the specialized producer. This would reduce the workload of the
staff. What factors will Amy have to consider when making this decision? Costs, profits,
quality, dependability(totally dependent on outsourcing)
f) Suppose that in 2020, total revenues of a Flash Coffee store were $ 150,000 and the costs
amount to $ 120,000. Thus, the company makes a profit of $ 30,000. For the year 2021,
it is expected that total revenues of this site will increase by 20% to $ 180,000. What
amount of profit can the company expect from that location?

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 QUIZ

What are the main financial representations of a business? 1

1. Financial accounting is an information system that:

a. assigns a share price to every company.
b. tracks and records an organization's business transactions.
c. provides information about the company's executives.
d. predicts the financial survival of a company.

2. The Balance Sheet is so named because:

a. in a balance sheet, cash in is always equal to cash out.
b. it presents a fair and balanced description of the business.
c. it presents the balances of the various asset, liability, and owner's equity accounts.
d. it must balance the need for detail and the need for brevity.

3. Asset or not? (all four must be a “yes” for the item to be an asset)
Expected
Acquired at Past
Obtained or future
Asset measurable transaction
controlled? economic
cost? or event?
benefits?
€50,000 cash
raised from
short-term
bank loan
Worldwide
reputation of
the BCC
Group
Employee
signs a
contract to
work for
€2,000 per
month
Merchandise
purchased
for €18,000;
paid €8,000
in cash,
remainder
on credit
Merchandise
purchased
for €5,000,

1 Exercises adapted from Financial Accounting, Online Tutorial, Harvard Business for Educators.

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 now past its
sell-by date

4. Liability or not? (all three must be a “yes” for the item to be a liability)

The obligation is
The obligation is
a present
The entity has an to transfer an
Liability? obligation that
obligation? economic
exists as a result
resource?
of past events?
€15,000 owed to
trade creditors
€50,000 short-
term debt
(amount owed to
bank)
You, BCC
Group’s owner
got a parking
ticket for
illegally parking
your family car
in the front of
the company
€25,000
mortgage
payable (amount
owed to bank)

5. On August 30, BCC Group has total assets of €12,500,000. It has total
liabilities of €10,500,000. What is the amount of BCC owners' equity on
August 30?

a. €23,000,000
b. €10,500,000
c. €2,000,000
d. none of the above

6. A consultancy mission is sold for €400. The customer paid €150 in cash and
put €250 on a credit account with BCC Group. Which one of the following
choices correctly describes the effect on balance sheet of the revenue
recognized from this sale?

a. Cash + €400....Retained earnings + €400

b. Cash + €400....Accounts receivable - €250...Retained earnings + €150
c. Cash + €150....Accounts receivable - €150
d. Cash + €150....Accounts receivable + €250....Retained earnings + €400

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 7. On September 28, your parents, thrilled at BCC Group’s early success,
invest €30,000 in the business and in return receive common stock. How will
this transaction affect BCC’s financial condition?

a. Increase cash €30,000....increase liabilities €30,000

b. Increase cash €30,000....decrease liabilities €30,000
c. Increase cash €30,000....decrease common stock €30,000
d. Increase cash €30,000....increase common stock €30,000

8. Which one of the following choices best completes this sentence: The total
debt to equity ratio is useful for judging ___________________.

a. the entity's ability to meet obligations that are due in the coming year.
b. the entity's long-term financial viability.
c. how efficiently the entity has used its bank loans.
d. the market value of its equity.

How can we increase our performance?

9. Cost classification

Classify the following types of costs that are incurred in a car manufacturing company.
Decide whether the costs are product costs (direct material, direct labour or manufacturing
overhead) or period costs (sales and distribution costs, administrative expenses, other period
expenses):

Cost type Classification

Wages of production
workers
Costs for a consulting
project
Costs of transport of
cars to retailers
Salary of production
manager
Costs of tires

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 10. Cost traceability and cost behavior

a. A consulting company is organized into 2 divisions: industry and

government & public sector. Within each business, the company has
several clients and projects. Decide at which level the given cost item
represents a direct (= cost can be easily traced) or an indirect (= cost have
to be allocated somehow) cost with respect to the three different cost
objects:

One consulting
Company Industry division
project in industry
Salary of head of
industry division
Travel expenses of
consultants
Energy costs in
corporate
headquarters
Consultants’ salaries

b. An automotive company produces cars in different product variants.

Decide whether the given cost item is a variable or fixed cost with respect
to the number of cars produced.

a. salary of production manager

b. workers’ wages
c. depreciation of production machines
d. costs of electricity
e. material costs for production
f. costs of tires
g. costs of development of new engine

11. Solve the following problem: 5,000 units are sold. What is their total cost if
the variable cost per unit is €0.12 and the fixed cost is €950?

a. €1,300
b. €1,550
c. €1,500
d. €1,450

12. Fixed costs are €25,000. Contribution per unit is €2.50. What is the break-
even point?

a. 2,500 units
b. 25,000 units
c. 250,000 units
d. 10,000 units

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 13. Which of the following statements is false?

a. Based on their total cost-volume relationship, total variable costs change as volume
changes.
b. Total fixed costs do not change as volume changes.
c. Assuming sales price and variable cost per unit remain the same, the contribution
per unit remains the same as volume increases.
d. Total profit is equal to total revenue less the difference between total fixed costs
and total variable costs.

14. Break-Even-Analysis
You just started a company that produces designer handbags which it seeks to sell to affluent
customers. The strategy to make the brand known is to have pop-up stands in expensive
hotels and beach clubs at selected islands in the Caribbean, the French Riviera, Mykonos,
Dubai, and Shanghai. You therefore hired a number of salespeople who explain the brand and
products and try to convince people to buy.
In your factory in Tuscany, the variable production costs of one handbag have been
calculated to be € 550. This mainly includes material costs, wages, and energy costs. In
addition, the monthly fixed costs of the company amount to € 60,000. These costs include
mainly rent, depreciation, distribution and administrative expenses, and other operating
expenses.
Assume that sales reps are currently paid a fixed salary (which is part of the distribution
costs). There are 6 sales reps in total. The monthly labour costs amount to € 3,000 per
salesperson. Handbags are sold for € 1,800.

a) Calculate the break-even point for Argentibe S.A. in terms of required monthly sales units.
b) Assume that your company currently sells 56 units per month. What is the margin of
safety?
c) You decide to change salespeoples’ remuneration: In the future, they will be paid a fixed
amount of € 1,000 (including all labor costs) and a commission of 5% of generated
revenues. How does this affect the break-even point? Is this a good decision?