Assignment

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Contents
Scenario#1.............................................................................................................................................3
Alternative#1 To sell Flavored Iced Coffee........................................................................................3
Alternative#2 Not to sell Flavored Iced Coffees.................................................................................3
Conclusion.........................................................................................................................................4
Scenario#2.............................................................................................................................................4
Conclusion.........................................................................................................................................5

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Scenario#1
We are reached by our client about offering Flavored Coffee to her customers. By analyzing
the situation, we have found that the Sales price is $3.75 per unit, the Cost is $1.70. it results
in a Profit per unit of $2.05 per unit. The client is also selling its Soft Drink. In order to make
Flavored Coffee, it needs to acquire equipment which will cost her $5,250. Besides this, she
also needs to have insurance cost of $175 per month as it is the need of the hot equipment.

Here, the client has given “What if” condition where we have to analyze the situation and to
choose the best possible alternative. In this case, there are two main alternatives to us/client.

1) To sell Flavored Iced Coffees and;

2) Not to sell Flavored Iced Coffees

Alternative#1 To sell Flavored Iced Coffee

In order to analyze Alternative#1, we are finding the Profit per unit which is

Sales price $3.75 per unit

Less: Cost $1.70

Profit $2.05 per unit

Next, let suppose the client sells 1000 units so, the Sales, Cost and Profit will be as under;
Sales (1000 * 3.75) = $ 3,750
Cost (1000*1.70) = 1,700
Profit = $ 2,050
By selling 1000 units, the company can earn a profit of $2,050 but still there are some other
costs associated which should also be considered like the Equipment cost which is $5,250
and the monthly insurance cost which is $175.

In order to cover the fixed cost of equipment without considering the Insurance cost,
(5250/2.05 = 2561 Units), it needs to sell 2561 units. Besides, this there is a risk of losing the
sales of the main product it sells that is the Soft Drink. So, we as a consultant is not
recommending selling Flavored Iced Coffee.

Alternative#2 Not to sell Flavored Iced Coffees

If the client goes for alternative 2, that is Not to sell Flavored Iced Coffees, she can continue
earning from the Soft Drink. There is no risk of decrease in the sales of the Soft Drink.

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Further to this, the client is not required to do investment in the expensive equipment of
$5250 as well as the monthly insurance.

Conclusion
Based on the above analysis, it is recommended that the client should not sell Flavored Iced
Coffee due to the reason that there is low profitability with high amount of investment.
Further to this, the investment in the new product is quite risky as well as it will lower the
sale of the other product on hand.

Scenario#2
Under this situation, the client is planning to sell cakes in two formats, Small Cake and Large
Cake. It plans to sell 20 units of Small cake while 25 large cakes per week. The selling price
is $18.95 and $28.95 respectively. The cost is $6.45 and $9.40 respectively for Small cake
and Large Cake. The weekly profitability analysis is as under;

Small Cakes

Price Qty Total

Sales 18.95 20 379
Cost 6.45 20 129
Profit 12.5 20 250

Lage Cakes

Price Qty Total

Sales 28.95 25 723.75
Cost 9.4 25 235
Profit 19.55 25 488.75

Total revenue from small cakes per week is $250 if the client sells 20 units a week while
from that of the large cakes, it is $488.75 a week.

Total weekly profit is $738.75 (250 + 488.75). The monthly profit is equal to $738.75 * 4 =
$2955.
In short-term, the project is not acceptable to the client as it incurs Equipment acquisition cost
of $3500 and monthly insurance cost of $175 which is exceeded the monthly profit which is
$2955 while just the equipment acquisition cost is $3500 and excluded the insurance cost.
The long-term view shows that the client will cover the initial cost upto the second month and
will incur only the insurance cost of $175 each month and the product cost each month. In

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this case, the option is profitable as it will not have equipment acquisition cost again and
again.
Conclusion
Base on the above analysis, we can conclude that the project of Small and Large Cakes is
profitable in the long run and they can produce profit to the client as it can cover its cost.