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Operating Leverage and Performance

Competency

Analyze leverage and activity ratios to review operating performance across organizations.

Student Success Criteria

View the grading rubric for this deliverable by selecting the “This item is graded with a rubric” link, which is located in the Details & Information pane.

Scenario

At a recent get together, a longtime friend brought various types of cookies as a dessert. You had never tasted cookies of this high caliber before. Your friend never thought anything special of the cookies, given she has been baking these since she was a small child. You shared that “Cookies from Home,” a profitable company based in Tempe, Arizona, started with the encouragement of friends. Intrigued, your friend stated she would like to learn more. She would like some assistance understanding how to start and operate a business of this nature.

In exchange for a 2% ownership in the company, you agree to help her develop a business plan to start her own business baking, marketing, and selling these cookies. The plan should include the following:

  • Fixed costs such as equipment, factory rent, insurance, depreciation, etc.
  • Variable costs such as direct materials (ingredients to make the cookie), direct labor (salaries), and overhead (utilities, maintenance, etc.)
  • Keep in mind that you will need to determine how many cookies are in one batch and estimate the yearly number of batches to sell.
Instructions
  • Use the following template for your work:

Module 4 Deliverable – Proforma Income Statement Template.xlsx

  • Write the startup/operating costs portion of the business plan for this company addressing the following:
  • Explain the process of determining the breakeven point for a business.
  • Estimate monthly fixed costs to establish this company, including equipment, rent, insurance, and other fixed costs.
  • Estimate variable costs per batch of cookies, identifying all variable costs.
  • Given the estimated costs, calculate the breakeven point and identify the required sales revenue to reach this point.
  • Based on the costs identified above, develop a realistic proforma income statement of a profitable business venture which would pay your friend a salary of $ 50,000 per year.

NOTE – Be sure the documents display proper grammar, spelling, punctuation, and sentence structure.

Assessment Requirements/Submission Requirement:
  • Proforma Income Statement
  • Startup/operating costs written portion of the business plan.

A – 4 – Mastery

Accurately and eloquently explains the process of determining the breakeven point for a business.

A – 4 – Mastery

Accurately estimates monthly fixed costs including equipment, rent, insurance, etc.

A – 4 – Mastery

Accurately identifies all variable costs per batch of cookies.

A – 4 – Mastery

Accurately calculates the breakeven point and identifies required sales revenue to reach breakeven.

A – 4 – Mastery

Precise and accurate proforma income statement resulting in a highly accurate projection.

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