Mission Statement and Partial Business Plan

ACC 302 Final Project

Project Orientation and Overview

Every year at the state fair your parents have run a pretzel booth. Over the years you have experimented with new pretzel recipes, and many have been successfully incorporated into the selection of pretzels now offered each year at the state fair.

Your parents are ready to retire and turn the business over in your name. You want to capitalize on your parents’ success and expand by offering pretzels at a store location. In order to expand, you will need to secure a bank loan to cover expansion costs and overhead. To consider your proposal, the banker will want to see a business plan, specifically a master budget.

Your task for this final project is to prepare and present all the necessary documents so that you can ask for that loan. This task is broken down into four parts:

·         Part 1: Mission Statement and Partial Business Plan, due at the end of Week Five

·         Part 2: Budgets, Financial Statements, and Analysis, due at the end of Week Six

·         Part 3: Complete Business Plan and Cover Letter, due at the end of Week Seven

Part 1 – Mission Statement and Partial Business Plan, due Week Five

·         Review the following chapters:

o    Chapter 18: The Changing Business Environment: A Manager’s Perspective

o    Chapter 19: Cost Concepts and Cost Allocation

o    Chapter 23: Cost Behavior Analysis

·         Complete theMission Statement Template Handout to record information about your pretzel company, its mission, and its featured product.

·         Use the tables and information in Exhibit 1 on the next page to calculate the costs of running your business and to complete the short answer section of the Mission Statement Template Handout.

• Calculate total variable costs per dozen pretzels.
• Calculate sales price per dozen pretzels using 120% markup on variable costs.
• Calculate contribution margin per dozen pretzels.
• Calculate breakeven point for the quarter (three months) in dollars and units.

·         Submit the completed Mission Statement Template Handout to “My Assignments” in My West.

Exhibit 1:

Cost of Goods

If your pretzel recipe has ingredients that are not included here, simply consider them part of your overhead expenses.

Direct Materials	Unit	Unit Cost
Flour (any kind)	per cup	$       0.15
Sugar (any kind)	per cup	$       0.15
Dry Yeast	per cup	$       0.50
1 Stick of Butter, Shortening, Oil	per 1/2 cup	$       1.00
Egg	per cup	$       0.10
Salt	per 1/2 cup	$       0.75
Specialty Ingredients (any kind, e.g., chocolate chips, cinnamon, cheese, pepperoni, etc.)	per cup	$       2.00

Direct Labor

Information regarding direct labor cost is not maintained because your facility is highly automated. Direct labor is included as part of manufacturing overhead.

Manufacturing Overhead and Operating Expenses

Manufacturing Overhead	Variable (per dozen)	Fixed (per month)
Utilities	$       0.50
Other Indirect Materials and Labor	$       0.75
Maintenance		$     500.00
Depreciation		$  2,000.00
Supervision		$  2,500.00
Totals	$       1.25	$  5,000.00

Operating Expenses	Variable (per dozen)	Fixed (per month)
Sales Commission	$       0.50
Shipping Costs	$       1.00
Salaries		$  5,000.00
Depreciation		$    200.00
Other		$  1,800.00
Totals	$       1.50	$  7,000.00

Part 2 – Budgets, Financial Statements, and Analysis, due Week Six

·         Review Chapter 24: The Budgeting Process.

·         Use the tables and information presented in Exhibit 2 on the next page to determine production and financial budget data.

·         Create a spreadsheet that provides the following budgets:

o    Sales budget/cash collections budget

o    Direct materials purchases budget/cash disbursements budget

o    Manufacturing overhead budget

o    Operating expenses budget

·         Create documents that show your projected income and your cash needs. More specifically, usethe budgets and other documentation that you have created for this project to create the following documents:

o    Proforma (projected) variable income statement

o    Proforma absorption income statement

o    Proforma balance sheet

o    Cash budget

·         Respond to the following short answer questions using a word processing program:

o    Discuss the importance of beginning the master budget process with an accurate sales budget.

o    What are some important factors that a manager should consider when developing a sales budget? State why each is important.

o    Distinguish between operating expenses and disbursements for operating expenses.

o    What is the main difference between the variable and absorption income statements?

o    What are the major benefits of budgeting?

·         Submit the budgets, financial documents, and short answer questions to “My Assignments” in My West.

Exhibit 2:

Production Budget Information

It is a few months before your store is opening. You expect to open the doors of your pretzel company as of January 1. You are starting fresh with no raw materials, no accounts receivable, and no accounts payable. You were able to secure several contracts with local businesses (i.e., sales associates that are paid on commission); based off these contracts, you were able to make projects for the first four months of the year.

·         Because your pretzels are made fresh daily, there is no work-in-process or finished goods inventory.

·         You plan to maintain a raw direct material inventory of 10% of the next month production.

·         Payment for raw direct materials is 25% in the month of purchase and 75% in the following months.

Your monthly sales projections are based off your last name, and sales are sold per dozen.

Collections on Sales

Cash sales collected in the current month: 40%

Credit sales are collected in the following month: 60%

Financial Budget Information

·         Your initial investment in your business is $50,000, and you are looking to secure a bank loan for $50,000 with additional line of credit. However, you must always have a minimum cash end-of-month balance of $10,000. 

·         If there is any cash over $10,000 available at the end of the month, you must repay your outstanding balance in $1,000 increments.

·         If the end-of-month cash balance falls below $10,000, you must make additional borrowing from the line of credit. These borrowings are also in increments of $1,000.

·         Your bank loan and line of credit has an annual interest rate of 12% which is paid monthly on the total outstanding borrowings at the end of the prior month.

Additional Information:

·         Fixed asset acquisition in January is $90,000.

·         Your income taxes are paid each quarter on net income at a rate of 25%.

Part 3 – Complete Business Plan and Cover Letter, due Week Seven

·         Write a cover letter to a banker explaining why the banker should approve your loan.

·         Compile and complete your business plan, including all supporting documentation created for this project.

·         Submit your complete business plan as one document to “My Assignments” via MyWest. 

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