September 26, 2019

MBA 210 - Managerial Accounting for Managers

Professor Hugh Pforsich
Background
● Experienced entrepreneurs suggested Joe turn his passion into a career
● Impressed by food and business plan, investor funded the business
● Emerging trend of food trucks around the world, but none in Kamloops
gave them first mover advantage
● The business saw immediate success
● Social media was the main source of advertisement
● Need to expand and gain loyal customer base
● Bullarama event - dilemma to go or not
Key Facts
● They made on average $1,200 a day
● The “Ripped Pig” is their signature dish and cost $12
○ Variable costs are 40%
○ Fixed costs per year is $10,000
● Truck operates 180 days of the year
● It takes 12 hours for the pork to smoke
● Bullarama is 70 kms away and would incur an additional expense of $230
● Their past experience with special events wasn’t the greatest
Questions
● Should Cat & Joe expand their business into the special events
market?
○ Will it be just as profitable? More profitable?
○ Why change the menu for the events?
■ Could the sides be options? “Pick 2 Sides”
■ If menu stays the same, would hiring one part-time employee be
helpful to process orders?
● How would this affect variable costs?

Takeaway: Cat & Joe need to do more research and

analysis before expanding into the special events market.
Questions continued...
● How does location affect sales?
○ Which locations are better?
■ Is selling at multiple locations a day an option?
● What would fuel expenses be if this was an option?
○ Is there a certain time of day that shows higher sales?
■ Does this differ per area?
● Could they be in an area for lunch with higher sales and
dinner in another area where sales are higher?

Takeaway: Cat & Joe need to strategically plan their vehicle

location and look into doing multiple locations a day.
Questions continued...
● Is going to Bullarama really beneficial for the future?
○ Are they thinking about expanding? Or is it just a one-time opportunity?
○ If profitable, are they willing to invest in a bigger truck for such future
events?
○ Is going to Bullarama going to affect the loyal customers at home?
○ Can Bullarama guarantee there won't be competitors?
■ Will they have a backup plan if there are competitors when they get there?
● Charging higher pricing to cover loss in the number of sales?

Takeaway: Cat & Joe should crunch numbers before

confirming to go and definitely have a backup plan.
Assumptions
● Cat and Joe see this as an opportunity to generate higher profit instead of
growth/expansion opportunity
● Another vendor or competitor will be present at the Bullarama event
● Cat & Joe want to strengthen their business in their local market and expand
slowly
● New food truck vendors will start to show up in their local market very soon
● Food trucks with cheaper options and wide variety will be more popular at
Bullaraman and in Kamloops
Takeaway: New, different, and cheaper food
trucks will start to enter the market, so a
decision on their growth needs to be made.
Decisions

Cut Variable Costs vs. Raise Prices

Venture Into Special Events vs. Strengthen Local Market

Go to Bullarama vs. Stay in Kamloops

Takeaway: They have a few options but need
to decide what’s most important to them.
Quantitative Analysis
Daily Numbers
Takeaway: Their daily break-even points
are important for decision making and
comparing to special event numbers.
Total Fixed Cost $10,000.00
Operational Time 180 days Break-even
Units 8* units/day
Selling Price $12.00 Break-even
Variable Expense $4.80 per unit in Dollars $96 per day
Fixed Expense $55.56 per day
* rounded units since .72 of a meal can’t be
Unit CM $7.20 per unit sold
 Takeaway: Always making well above break-even sales point.

Daily Contribution Income Statement

Current Low Current Average Current High

Daily Sales Daily Sales Daily Sales
Units 75 100 125
Sales $900.00 $1,200.00 $1,500.00
Variable Expenses ($360.00) ($480.00) ($600.00)
Contribution Margin $540.00 $720.00 $900.00
Fixed Expenses ($55.56) ($55.56) ($55.56)
Net Operating Income $484.44 $664.44 $844.44
Quantitative Analysis
Special Event Numbers Takeaway: This is important to decide if
they should go to Bullarama as fixed
expenses for the day significantly increase
Total Fixed Cost $10,000.00 making their break-even points increase.

Operational Time 180 days Break-even

Units 47* units/day
Selling Price $9.00 Break-even
Variable Expense $2.90 per unit in Dollars $423 per day
Fixed Expense $285.56 per day
* rounded units since .81 of a meal can’t be
Unit CM $6.10 per unit sold
 Takeaway: Cat & Joe will only make more money if there are absolutely no competitors. Even
just one competitor would hurt their income (making only $38 over break-even sales point).

Bullarama Contribution Income

Statement No Competitors One Competitor Two Competitors
Units 245 123 82
Sales $2,205.00 $1,107.00 $738.00
Variable Expense ($710.50) ($356.70) ($237.80)
Contribution Margin $1,494.50 $750.30 $500.20
Fixed Expense ($55.56) ($55.56) ($55.56)
Donation + Gas ($230.00) ($230.00) ($230.00)
Net Operating Income $1,208.94 $461.69 $212.61
 Takeaway: Cat & Joe will only make money at
Bullarama if there are absolutely no competitors.

Differential Analysis
Difference
Bullarama - 2 Competitors $212.61
Kamloops - 75 Customers $484.44 -$271.83
Bullarama - No Competitor $1,208.94
Kamloops - 125 Customers $844.44 $364.50
Bullarama - 1 Competitor $461.69
Kamloops - 100 Customers $664.44 -$202.75
Qualitative Analysis
Staying in Kamloops

● Opportunity to serve the known and experienced market

● Opportunity to strengthen loyal customer base
● Secured market presence
● Loss of networking and advertising opportunity
● Loss of opportunity to experience new market
● Loss of possible future business with the organizers
Qualitative Analysis
Going to Bullarama

● 140 kilometer round trip - physical stress on Cat and Joe

● Higher gas expense - physical stress on vehicle
● Potential new customers and higher sales and profit if there are no
competitors
● Opportunity to network and advertise business outside of local
market
● Possibility of loss of business if another vendor is present
●
Recommendation

Go to Bullarama vs. Stay in Kamloops

Takeaway: The decision should not always be about the short-term profit.
Any decision made by the owners is going to have a huge impact on their business strategy.
SWOT Analysis
STRENGTHS
● Strong social media presence
● Good quality, unique product
● Loyal and regular customers
● Knowledge of the local market
OPPORTUNITIES
● Maintain and grow loyal customer base
● Build on the strong market presence
● Sell at more popular locations
● Generate higher profit
● Expand business locally
WEAKNESSES
● No vegetarian options on the menu
● Poor forecasting for sales
○ Possible excess = waste
○ Possible shortage = closing early
and loss of sales
THREATS
● Loss of marketing/promotion opportunity
● Loss of possible contract for future events
Questions?

Thank you!