delia's donuts accounting summary
DESCRIPTION
Accounting reccomendations for Delia's Donuts Case Study.TRANSCRIPT
Delia!s D nuts
Executive Overview
After reviewing Delia’s financial situations, we have come to conclusions that will help her in the present and the future. First, we recommend that Delia should purchase four donut machines. This will produce excess capacity and
reduce her overall expenses. Next, Delia should follow through with the computer equipment purchase. This decision will increase productivity and help
will her financial bookkeeping. Considering the South side store, we do not recommend opening one until we lower sales commission and raise charitable
price per unit. This will make the North side store profitable. Based on our projections and analysis, we also suggest that Delia begin selling donuts at
C-stores. Selling donuts at 40 C-store accounts will provide a 37% net profit margin. In conclusion, Delia’s health-care costs will be reduced based on the
recommendations we have suggested.
Delia!s D nuts
Question 1
Should Delia’s proceed with the purchase of the donut making machinery?
Why or why not?
Should Delia’s proceed with the purchase of the donut making machinery? Why or why not?
• Yes, Delia should proceed with the purchase of the donut making machinery.• We suggest that Delia fire all 30 bakers. • Delia should replace the bakers by purchasing 4 machines (1 machine
working at 25% capacity; all others at full capacity).• With 4 machines, Delia will be able to make enough donuts based on actual
2009 sales (retail and charitable).• Key numbers:
o Total Cost (3.25 machines; includes annual depreciation for 4 machines, salary for 9 machine operators, operators insurance, operators workmen’s comp, COGS, warranty cost for one year for 3 machines, maintenance cost for one machine for one year, property and casualty insurance) = $2,067,219
• See Exhibits 1-10:o 1: How many donuts were sold in 2009?o 2: How many machines do we need to make in 2009?o 3: How much is health insurance and workman’s compensation?o 4: How much do machine maintenance and warranty cost per year?o 5: What will the COGS be if we use machines?o 6: What will Property & Causality Insurance cost if we use machines?o 7: How much do 3.25 machines cost?o 8: How much does it cost to run a machine at 25% capacity?o 9: How much would it cost to pay 7 bakers in 2009?o 10: Is it less expensive to purchase machines or hire bakers?
Delia!s D nuts
Delia!s D nuts
Exhibit 1How many donuts we sold in 2009
2009 Total Retail Donuts Sold2009 Total Retail Donuts Sold
Total 2009 Retail Sales $775,500
Frosted Percentage 60%
Frosted Retail Sales $465,300
Frosted Retail Unit Price $0.625
Frosted Retail Total Units Sold 744,480
Filled Percentage 40%
Filled Retail Sales $310,200
Filled Retail Unit Price $0.75
Filled Retail Total Units Sold 413,600
Total Retail Units Sold 1,158,080
2009 Total Charity Donuts Sold2009 Total Charity Donuts Sold
Total 2009 Charity Sales $3,033,071.00
Charity Price Per Dozen $6.50
Charity Price Per Unit $0.54
Total Charity Units Sold 5,616,798
TOTAL 2009 UNITS SOLD 6,774,878
Delia!s D nuts
Exhibit 2How many machines do we need to make donuts in 2009?
Calculations for # of machines for Retail/CharityCalculations for # of machines for Retail/Charity
donuts sold in 2009 6,774,879
# of donuts (1) machine can make 2,085,610
machines needed to make 2009 donuts 3.25
Delia!s D nuts
Exhibit 3How much is health insurance and workman’s compensation per employee?
Number of EmployeesNumber of Employees
8 packaging and shipping people
30 bakers
1 packing and shipping manager
6 office staff
1 delia
46 full-time total in 2009
14 part time employees
60 total employees (both F/T and P/T) in 2009
Number of part time retail employeesNumber of part time retail employees
2 employees to staff retail at all times
18 hours per day to staff
7 days per week
252 total number of hours needed to staff per week
40 hours per full-time employee
7 full-time employees needed to staff per week
14 part-time employees needed to staff per week
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Exhibit 3 Continued
Number of BakersNumber of Bakers
7 bakers per shift
3 shifts per day
8 hours per shift
7 days per week
1,176 total number of hours needed to staff per week
40 hours per full-time employee
30 full-time bakers needed to staff one week
Health Insurance and Workman's Compensation CalculationsHealth Insurance and Workman's Compensation Calculations
$171,429 total health insurance per year
$3,727 health insurance per employee
$40,000 workman's comp per year
$667 Workman's comp per person per year
Assumptions
Full time employees work 40 hours per week
Doubled number of full-time workers needed to translate into part-time workers
Only full-time employees get health insurance
All full-time and part-time employees get workman's compensation
All retail employees are part-time employees
Delia!s D nuts
Exhibit 4How much do machine maintenance and warranty cost per year?
Maintenance Costs per yearMaintenance Costs per year
$1,000 cost per month
12 months per year
$12,000 total costs per year
Warranty Costs per yearWarranty Costs per year
$650 cost per month in first (2) years
$850 cost per month in last (3) years
$15,600 total costs for the first (2) years
$30,600 total costs for the last (3) years
$46,200 Total for (5) years
$92,400 Total for (10) years
$9,240 Blended rate per year
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Exhibit 5What will the COGS be if we use machines?
New COGS due to MachinesNew COGS due to Machines
2009 COGS $2,398,571
labor costs (55% of total COGS) $1,319,214
COGS - Bakers Labor $1,079,357
Rent $35,000
COGS - Rent $1,044,357
10% of COGS (due to machine efficiencies) $104,436
New COGS due to savings $974,921
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Exhibit 6What will Property & Causality Insurance cost if we use machines?
New Property and Casualty Insurance Costs CalculationsNew Property and Casualty Insurance Costs Calculations
Property and Casualty Insurance 2009 Costs $8,571
Percentage Increase due to Machinery 15%
New Property and Casualty Insurance Costs due to Machinery $9,857
Delia!s D nuts
Exhibit 7How much do 3.25 machines cost?
Full-Time Machine CalculationsFull-Time Machine CalculationsFull-Time Machine Calculations
(1)
machine
(3)
machines
Annual Depreciation $10,000 $30,000
Staff Costs ((2) workers x 24 hours x $15/hour x 365
days)
$262,800 $788,400
Staff Health Insurance ((2) workers per shift x (3) shifts
x (8) hours/shift x (7) days per week / (40) hours for
full-time employment)
$33,540 $100,621
Staff Workman's Compensation $6,000 $18,000
Warranty Costs $9,240 $27,720
Maintenece Costs $12,000 $0
TOTAL $333,580 $964,741
Total Costs for 3.25 MachinesTotal Costs for 3.25 Machines
Total Costs for (3) machines $964,741
Total Costs for (1) machine at 25% capacity $82,700
Total COGS $974,921
Total Rent $35,000
Total Property & Casualty Insurance $9,857
Total Costs for 3.25 Machines $2,067,219
Delia!s D nuts
Exhibit 8How much does it cost to run a machine at 25% capacity?
Number of Part-Time Machine Operators Number of Part-Time Machine Operators
2 employees to run machine
6 hours per day
7 days per week
84 total number of hours needed to staff per week
40 hours per full-time employee
3 full-time employees needed to staff per week
6 part-time employees needed to staff per week
Part-Time Machine CalculationsPart-Time Machine Calculations
(1) Machine at 25% Capacity
Annual Depreciation $10,000
Staff Costs ((2) workers x (6) hours a day x
$15/hour x 365 days)
$65,700
Staff Health Insurance $0
Staff Workman's Compensation (6 staff) $4,000
Warranty Costs $0
Maintenece Costs $3,000
TOTAL $82,700
Assumption
Running a machine at 25% capacity reduces maintenance costs by 75%
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Exhibit 9How much would it cost to pay 7 bakers to make 2009 donuts?
Bakers Cost CalculationsBakers Cost Calculations
Bakers Salary $1,079,357
Bakers Health Insurance $111,802
Bakers Workman's Compensation $20,000
Total COGS $1,079,357
Property & Casualty Insurance $8,571
TOTAL $2,538,944
Note: COGS includes cost of donuts outsourced due to insufficient productionNote: COGS includes cost of donuts outsourced due to insufficient production
Delia!s D nuts
Exhibit 10Is it less expensive to purchase machines or hire bakers?
Machines vs. Bakers Cost ComparisonMachines vs. Bakers Cost Comparison
Total Costs for Bakers $2,538,944
Total Costs for Machines $2,067,219
Savings due to Machines $471,724
Delia!s D nuts
Question 2
Should Delia’s proceed with the purchase of the computer equipment?
Why or why not?
Should Delia’s proceed with the purchase of the computer equipment? Why or why not?
• Yes, Delia should proceed with the purchase of the computer equipment.• It is cheaper to have one computer and one new employee than it is to have
3 employees with no computer.• Buying computer equipment would increase productivity by at least 25%
which is equivalent to 2.5 people (.25 x 6 current office staff = 1.5 people)• To reach the goal of the increased staff of 2.5 people, we would need to
purchase one computer and one office worker.• Key numbers:
o Total Cost (one machine and one person annually) = $60,560o 3 Office Workers= $88,680o Delia will save = $27,788
• See Exhibits 1 -5:o 1: How does a computer increase productivity and by how much?o 2: How much does it cost to hire 3 people?o 3: How much does it cost to purchase a machine?o 4: How much does it cost to hire 1 person?o 5: Is it less expensive to hire 3 people than 1 computer and 1 person?
Delia!s D nuts
Delia!s D nuts
Exhibit 1How does a computer increase productivity and by how much?
Productivity CalculationsProductivity Calculations
25% Guaranteed productivity increase by purchasing a computer
6 Current number of staff
1.5 Equivalent number of staff added if productivity is
increased by 25%
Assumption
Equivalent staff increase due to computer productivity will not be rounded up
Delia!s D nuts
Exhibit 2How much does it cost to hire 3 people?
Staffing CalculationsStaffing Calculations
Salary $75,000
Health Insurance $11,181
Workman's Compensation $2,001
TOTAL COSTS PER YEAR $88,182
Delia!s D nuts
Exhibit 3How much does it cost to purchase a machine?
Computer CalculationsComputer Calculations
Annual depreciation for computer $25,000
Computer maintenance per year $6,000
TOTAL COSTS PER YEAR $31,000
Delia!s D nuts
Exhibit 4How much does it cost to hire 1 person?
Staffing CalculationsStaffing Calculations
Salary $25,000
Health Insurance $3,727
Workman's Compensation $667
TOTAL COSTS PER YEAR $29,394
Delia!s D nuts
Exhibit 5Is it less expensive to hire 3 people than 1 computer and 1
person?
Staff vs. Computer ComparisonStaff vs. Computer Comparison
Total Costs for (3) people $88,182
Total Costs for computer and person $60,394
Savings due to computer and person $27,788
Delia!s D nuts
Question 3
Should Delia’s proceed with the opening of the new South side store?
Why or why not?
Should Delia’s proceed with the opening of the new South side store? Why or why not?
• Based on the information, we cannot formally draw a conclusion.• We do not have enough data to confidently recommend opening a south side
store because of the following assumptions:o We will not cannibalize sales from the North side store.o We will reach expected sales based on 2009 retail sales.
• Also, Delia should not open a South side store location until she considers the following:
o Increasing charity by $0.04 per donuto Decreasing sales commission by 2%
• We cannot conclude if there is a manufacturing space in the new South side store. Based on this, if Delia were to open a new South side store, we suggest only making it a retail store because we are losing money at the North side store in charity.
• Key numbers:o Gross Profit (if she were to open a retail only store) = $219,781
• See Exhibits 1- 9:o 1: How much will the South side store sell?o 2: How many machines will we need to purchase to make projected sales?o 3: How much will production cost from projected sales?o 4: What are the non-production expenses for the South side store?o 5: What will the South side store’s net profit be?o 6: How are the increases in charitable sales affecting our bottom line?o 7: What additional revenue can we gain by decreasing sales commission to
the 2008 level?o 8: What additional revenue can we gain by increasing price by $0.04 per
charity unit sold?o 9: How will these additional revenue affect our bottom line?
Delia!s D nuts
Delia!s D nuts
Exhibit 1How much will the South side store sell?
Projected Sales (based on 2009 retail data)Projected Sales (based on 2009 retail data)
Total 2009 Retail Sales $775,500
Frosted Percentage 60%
Frosted Retail Sales $465,300
Frosted Retail Unit Price $0.625
Frosted Retail Total Units Sold 744,480
Filled Percentage 40%
Filled Retail Sales $310,200
Filled Retail Unit Price $0.75
Filled Retail Total Units Sold 413,600
Total Retail Units Sold 1,158,080
Delia!s D nuts
Exhibit 2How many machines will we need to purchase to make projected sales?
Calculations for # of machines for South Side StoreCalculations for # of machines for South Side Store
Projected Unit Sales 1,158,080
# of donuts (1) machine can make 2,085,610
Machines needed to make projected sales 0.56
Delia!s D nuts
Exhibit 3How much will production cost for projected sales?
COGS Per Unit CalculationsCOGS Per Unit Calculations
2009 COGS $2,398,571
Bakers Labor $1,319,214
Manufacturing Rent $35,000
COGS - Labor - Rent $1,044,357
Number of donuts sold in 2009 6,774,879
COGS per unit $0.15
Total COGS based on Projected SalesTotal COGS based on Projected Sales
COGS per unit $0.15
Projected Unit Sales 1,158,080
Total COGS based on Projected Sales $178,520
Part-Time Machine CalculationsPart-Time Machine Calculations
(1) Machine at 56% Capacity
Annual Depreciation $10,000
Staff Costs ((2) workers x (13) hours a day x
$15/hour x 365 days)
$142,350
Staff Health Insurance $0
Staff Workman's Compensation (10 staff) $6,670
Warranty Costs $0
Maintenance Costs $6,720
TOTAL $165,740
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Exhibit 3 Continued
Total Production CostsTotal Production Costs
Total COGS $178,520
Total Machine Costs $165,740
Total Production Costs $344,260
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Exhibit 4What are the non-production expenses for the South side store?
Part-Time Retail Staff NeededPart-Time Retail Staff Needed
2 employees to staff retail at all times
18 hours per day to staff
7 days per week
252 total number of hours needed to staff per week
40 hours per full-time employee
7 full-time employees needed to staff per week
14 part-time employees needed to staff per week
Part-Time Retail Staff CalculationsPart-Time Retail Staff Calculations
Number of hours per day to staff 14
Hourly rate $15
Retail Salaries per year $76,650
Health Insurance $0
Workman's Compensation @ $667 per employee $9,338
Rent CalculationsRent Calculations
North Side Store Rent per year $24,000
South Side Rent Difference 35%
South Side Rent Total per year $15,600
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Exhibit 4 ContinuedAllocation Percentage Calculations (by square feet)Allocation Percentage Calculations (by square feet)Allocation Percentage Calculations (by square feet)
Total Square Feet Allocated Percentage
Retail 2,400 19%
Pack/Ship 2,000 16%
Sales 1,000 8%
Manufacturing 7,000 56%
TOTAL 12,400 100%
Retail G&A Expenses based on Allocation by square feetRetail G&A Expenses based on Allocation by square feetRetail G&A Expenses based on Allocation by square feet
Total Costs at
North Side
Retail Allocation
(19% of total cost)
Property & Casualty Insurance $8,571 $1,628
Product Liability $6,429 $1,222
Telephone $8,571 $1,628
Extermination $6,429 $1,222
General Maintenance $30,000 $5,700
Property & Casualty Insurance Calculations due to MachineryProperty & Casualty Insurance Calculations due to Machinery
Property and Casualty Insurance $1,628
Percentage Increase due to Machinery 15%
New Property and Casualty Insurance Costs due to Machinery $1,873
Delia!s D nuts
Exhibit 4 ContinuedSouth Side Non-Production ExpensesSouth Side Non-Production Expenses
Rent $15,600
Utilities $8,571
Salaries - Retail $76,650
Retail Workman's Compensation $9,338
Supplies $6,429
Property & Casualty Insurance $1,873
Product Liability $1,222
Telephone $1,628
Extermination $1,222
General Maintenance $5,700
TOTAL NON-PRODUCTION EXPENSES $128,232
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Exhibit 5What will the South side store’s net profit be?
South Side Store Projected Income StatementSouth Side Store Projected Income Statement
Projected Gross Sales $775,500
Projected COGS $178,520
Projected Gross Profit $596,980
Projected Expenses
Rent $15,600
Utilities $8,571
Salaries - Retail $76,650
Retail Workman's Compensation $9,338
Supplies $6,429
Property & Causality Insurance $1,873
Product Liability $1,222
Telephone $1,628
Extermination $1,222
General Maintenance $5,700
Annual Machine Depreciation $10,000
Salaries - Production $142,350
Production Staff Workman's Compensation $6,670
Maintenance Costs $6,720
Projected Total Expenses $293,972
PROJECTED NET PROFIT $303,008
Delia!s D nuts
Exhibit 6How are the increases in charitable sales affecting our bottom line?
Total SalesTotal SalesTotal SalesTotal SalesTotal SalesTotal Sales
2005 2006 2007 2008 2009
Retail $375,000 $633,500 $810,000 $814,500 $775,500
Charitable $300,000 $750,500 $1,336,000 $1,578,600 $3,033,071
Total $675,000 $1,384,000 $2,146,000 $2,393,100 $3,808,571
Percentage of Total SalesPercentage of Total SalesPercentage of Total SalesPercentage of Total SalesPercentage of Total SalesPercentage of Total Sales
2005 2006 2007 2008 2009
Retail 56% 46% 38% 34% 20%
Charitable 44% 54% 62% 66% 80%
Changes in Sales CommissionChanges in Sales CommissionChanges in Sales CommissionChanges in Sales CommissionChanges in Sales CommissionChanges in Sales Commission
2005 2006 2007 2008 2009
Charitable
Sales
$300,000 $750,500 $1,336,000 $1,578,600 $3,033,071
Sales
Commission
$4,750 $13,575 $27,000 $49,775 $151,654
Sales
Commission
Percentage
2% 2% 2% 3% 5%
Difference in RevenueDifference in RevenueDifference in Revenue
Plain Retail Plain Charitable
Price per dozen $7.50 $6.50
Difference $1.00
Delia!s D nuts
Exhibit 7What additional revenue can we gain by decreasing sales commission to the
2008 level?
Commissions ComparisonCommissions ComparisonCommissions Comparison
2009 Charitable Sales 5% Commission 3% Commission
$3,033,071 $151,654 $90,992
Difference $60,661
Delia!s D nuts
Exhibit 8What additional revenue can we gain by increasing price by $0.04 per charity
unit sold?
2009 Total Charity Donuts Sold2009 Total Charity Donuts Sold
Total 2009 Charity Sales $3,033,071.00
Charity Price Per Dozen $6.50
Charity Price Per Unit $0.54
Total Charity Units Sold 5,616,798
Increased Price CalculationsIncreased Price Calculations
Charity Price Per Unit $0.54
Price Increase $0.04
New Price Per Unit $0.58
Charity Price Per Dozen $6.96
Total 2009 Charity Units Sold 5,616,798
Total Charity Sales $3,257,743
Additional Revenue due to price increase $224,672
Delia!s D nuts
Exhibit 9How will these additional revenue affect our bottom line?
Additional Revenue CalculationsAdditional Revenue Calculations
Revenue from decreasing commission $60,661
Revenue from price increase $224,672
Total Additional Revenue $285,333
2009 Budget due to changes2009 Budget due to changes
2009 Net Income Loss -$150,464
Sales Manager $40,000
Sales Manager Commissions (1% of new sales) $32,577
Additional Revenue $285,333
2009 Budget due to changes $62,292
Assumptions
Price increase will keep charitable demand stagnant (i.e. sales will stay the same)
Decreased commission will not affect sales due to sales manager hired
Delia!s D nuts
Question 4
Should Delia’s begin selling donuts to C-stores?
Why or why not? If yes, how?
Should Delia’s begin selling donuts to C-stores? Why or why not? If yes, how?
• Yes, Delia should being selling donuts to C-stores because it yields a 60% margin at 40 accounts (at 80 accounts, profit margin goes down 2%).
• We considered the same assumptions that were made for opening a new South side store (listed above in Question 3). However, the profit margin is so high that it is going to make Delia money.
• Key numbers:o 37% net profit margin (40 accounts)o 35% net profit margin (80 accounts)
• See Exhibits 1-8:o 1: What are the projected sales for 40 accounts?o 2: How many unites would we need to produce in order to reach project
sales?o 3: How many machines and bakers would we need to meet projected unit
sales?o 4: What are the non-production related expenses for 40 accounts?o 5: What are the production related expenses for 40 accounts?o 6: What are the total projected expenses for the 40 accounts?o 7: What is the projected net income for 40 accounts?o 8: What is the projected net income for 80 accounts?
Delia!s D nuts
Delia!s D nuts
Exhibit 1What is the projected sales for 40 accounts?
Projected Sales for 40 AccountsProjected Sales for 40 Accounts
Fall/Winter
Cost per dozen $6
# of dozen sold per day in Fall/Winter 12
sales per week $525
# of weeks in Fall/Winter 24
Total Fall/Winter Sales $12,600
Spring/Summer
Cost per dozen $6
# of dozen sold per day in Spring/Summer 10
sales per week $438
# of weeks in Spring/Summer 24
Total Spring/Summer Sales $10,500
Total Annual Sales for (1) Account $23,100
Number of Accounts for (1) F/T Sales Staff 40
TOTAL PROJECTED SALES $924,000
Delia!s D nuts
Exhibit 2How many units would we need to produce in order to reach projected sales?
Projected Units Sold CalculationsProjected Units Sold Calculations
Fall/Winter
# of dozen sold per day in Fall/Winter 12
# of units per dozen 12
days per week 7
weeks per month 4
total months 6
Total Fall/Winter Units Sold 24,192
Spring/Summer
# of dozen sold per day in Spring/Summer 10
# of units per dozen 12
days per week 7
weeks per month 4
total months 6
Total Spring/Summer Units Sold 20,160
Total Annual Units Sold for (1) Account 44,352
Number of Accounts for (1) F/T Sales Staff 40
TOTAL PROJECTED UNITS SOLD 1,774,080
Delia!s D nuts
Exhibit 3How many machines and bakers would we need to meet projected unit sales?
Total Donuts made by MachinesTotal Donuts made by Machines
# of donuts (1) machine can make 2,085,610
Total Number of Machines Owned 4
Maximum capacity of donut production 8,342,440
Donuts needed for Retail/Charity 6,774,879
Excess Inventory 1,567,561
Projected Units needed for (40) Accounts 1,774,080
Difference -206,519
Donuts per baker per shiftDonuts per baker per shift
Donuts made per week 125,000
Days Per Week 7
# of shifts per day 3
# of bakers per shift 7
Donuts made per baker per shift 850
Part-Time Baker HoursPart-Time Baker Hours
# of donuts made by hand 206,519
# of donuts needed per day 566
Donuts made per baker per shift 850
Productivity Needed 67%
# of hours per shift 8
Number of hours needed per day 5.3
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Exhibit 3 Continued
Number of Part-Time BakersNumber of Part-Time Bakers
Bakers per shift 1
Shifts per day 1
Hours per shift 5.3
Days per week 7
Total number of hours needed to staff per week 37
Hours per full-time employee 40
Total number of part-time bakers needed 1
Delia!s D nuts
Exhibit 4What are the non-production related expenses for 40 accounts?
Non-Production Related Expenses for 40 AccountsNon-Production Related Expenses for 40 Accounts
Salary - (1) F/T Staff $25,000
Sales Health Insurance $3,727
Sales Workman's Compensation $667
Commission (1% of sales) $9,240
Annual Depreciation on Van $12,000
TOTAL SALES EXPENSES $50,634
Delia!s D nuts
Exhibit 5What are the production related expenses for 40 accounts?
Full-Time Machine CalculationsFull-Time Machine CalculationsFull-Time Machine Calculations
(1) machine (4) machines
Annual Depreciation $10,000 $40,000
Staff Costs ((2) workers x 24 hours x $15/hour x
365 days)
$262,800 $1,051,200
Staff Health Insurance ((2) workers per shift x (3)
shifts x (8) hours/shift x (7) days per week / (40)
hours for full-time employment)
$33,540 $134,162
Staff Workman's Compensation $6,000 $24,000
Warranty Costs $9,240 $36,960
Maintenance Costs $12,000 $0
TOTAL $333,580 $1,286,322
Machine Costs Allocation based on ProductivityMachine Costs Allocation based on Productivity
Costs for 3.25 Machines for Retail/Charity $1,047,441
Costs for (4) Machines $1,286,322
Costs allocated towards C-Store production $238,880
Bakers Cost CalculationsBakers Cost Calculations
Bakers Hourly Rate $15
Hours Per Day 5.3
Bakers Annual Salary $29,018
Health Insurance $0
Bakers Workman's Compensation $667
TOTAL BAKERS EXPENSES $29,705
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Exhibit 5 Continued
C-Store COGSC-Store COGS
Total Projected Units Sold 1,774,080
COGS/unit $0.15
TOTAL C-STORE COGS $266,112
Production Related ExpensesProduction Related Expenses
Costs allocated towards C-Store production $238,880
Total Part Time Bakers Expenses $29,705
TOTAL PRODUCTION EXPENSES $268,585
Delia!s D nuts
Exhibit 6What are the total projected expenses for the 40 accounts?
Projected Expenses for (40) AccountsProjected Expenses for (40) Accounts
Non-Production Related Expenses $50,634
Production Related Expenses $268,585
TOTAL EXPENSES $319,219
Delia!s D nuts
Exhibit 7What is the projected net income for 40 accounts?
C-Store Projected Income Statement (for 40 accounts)C-Store Projected Income Statement (for 40 accounts)
Projected Sales $924,000
Projected COGS $266,112
Projected Gross Profit $657,888
Projected Expenses
Salary - (1) F/T Staff $25,000
Sales Health Insurance $3,727
Sales Workman's Compensation $667
Commission (1% of sales) $9,240
Annual Depreciation on Van $12,000
Machine Costs allocated towards C-Store
production
$238,880
Bakers Annual Salary $29,018
Health Insurance $0
Bakers Workman's Compensation $667
Total Projected Expenses $319,219
PROJECTED NET INCOME $338,669
Delia!s D nuts
Exhibit 8What is the projected net income for 80 accounts?
Total Donuts made by MachinesTotal Donuts made by Machines
# of donuts (1) machine can make 2,085,610
Total Number of Machines Owned 4
Maximum capacity of donut production 8,342,440
Donuts needed for Retail/Charity 6,774,879
Excess Inventory 1,567,561
Projected Units needed for (80) Accounts 3,548,160
Difference -1,980,599
Total Number of Machines Needed for DifferenceTotal Number of Machines Needed for Difference
Donuts Needed 1,980,599
# of donuts (1) machine can make 2,085,610
Machines Needed 1
Total Number of Machines needed for (80) Accounts 5
Full-Time Machine CalculationsFull-Time Machine CalculationsFull-Time Machine Calculations
(1) machine (5) machines
Annual Depreciation $10,000 $50,000
Staff Costs ((2) workers x 24 hours x $15/hour x
365 days)
$262,800 $1,314,000
Staff Health Insurance ((2) workers per shift x (3)
shifts x (8) hours/shift x (7) days per week / (40)
hours for full-time employment)
$33,540 $167,702
Staff Workman's Compensation $6,000 $30,000
Warranty Costs $9,240 $46,200
Maintenece Costs $12,000 $0
TOTAL $333,580 $1,607,902
Delia!s D nuts
Exhibit 8 Continued
Machine Costs Allocation based on ProductivityMachine Costs Allocation based on Productivity
Costs for 3.25 Machines for Retail/Charity $1,047,441
Costs for (5) Machines $1,607,902
Costs allocated towards C-Store production $560,461
Net Income Margin ComparisonsNet Income Margin ComparisonsNet Income Margin Comparisons
40 Accounts 80 Accounts
Projected Sales $924,000 $1,848,000
Projected COGS $266,112 $532,224
Projected Gross Profit $657,888 $1,315,776
Projected Expenses
Salary - (1) F/T Staff $25,000 $50,000
Sales Health Insurance $3,727 $7,454
Sales Workman's Compensation $667 $1,334
Commission (1% of sales) $9,240 $18,480
Annual Depreciation on Van $12,000 $24,000
Machine Costs allocated towards C-
Store production
$238,880 $560,461
Bakers Annual Salary $29,018 $0
Health Insurance $0 $0
Bakers Workman's Compensation $667 $0
Total Projected Expenses $319,219 $661,729
Projected Net Income $338,669 $654,047
PROJECTED NET INCOME MARGIN 37% 35%
Delia!s D nuts
How can the company begin to reign in its health-care costs?
• Saving money by:o We are firing full time staffo We are purchasing machineso The part-time employees that will be hired will not be given health care
• See Exhibits 1-2:o 1: What would our health insurance numbers be if we didn’t
recommend C-store or Sales Manager additions?o 2: What percentage of expenses is health care taking up with C-store
and Sales manager additions?
Delia!s D nuts
Exhibit 1What would our health insurance numbers be if we did not recommend
C-Store or Sales Manager additions?
Comparison of Full-Time Employees (No C-Stores or Computer/Office Staff Increase)
Comparison of Full-Time Employees (No C-Stores or Computer/Office Staff Increase)
Comparison of Full-Time Employees (No C-Stores or Computer/Office Staff Increase)
2009 2010
Packing & Shipping 8 8
Packing & Shipping Manager 1 1
Bakers 30 0
Office Staff 6 6
Delia 1 1
Sales Manager 0 0
Sales - C-Store 0 0
Machine Labor 0 27
TOTAL FULL TIME EMPLOYEES 46 43
Health Care Costs ComparisonHealth Care Costs ComparisonHealth Care Costs ComparisonHealth Care Costs Comparison
2009 2010 Differences
Health Care Costs $171,429 $160,261 -$11,168
Expenses $1,042,900 $2,801,978 $1,759,078
Percentage of Expenses 16% 6% -11%
Delia!s D nuts
Exhibit 2What percentage of expenses is health-care taking up with C-Store and
Sales Manager additions?
Comparison of Full-Time EmployeesComparison of Full-Time EmployeesComparison of Full-Time Employees
2009 2010
Packing & Shipping 8 8
Packing & Shipping Manager 1 1
Bakers 30 0
Office Staff 6 7
Delia 1 1
Sales Manager 0 1
Sales - C-Store 0 1
Machine Labor 0 36
TOTAL FULL TIME EMPLOYEES 46 55
Health Care Costs ComparisonHealth Care Costs ComparisonHealth Care Costs ComparisonHealth Care Costs Comparison
2009 2010 Differences
Health Care Costs $171,429 $204,985 $33,556
Expenses $1,042,900 $2,801,978 $1,759,078
Percentage of Expenses 16% 7% -9%
Delia!s D nuts
2009 Monthly BudgetJan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. Total
# Donuts Sold (est.) 677488 677488 677488 677488 609739 406493 338744 270995 406493 677488 677488 677488 6,774,879
Revenue:
Retail Sales 77550 77550 77550 77550 69795 46530 38775 31020 46530 77550 77550 77550 775,500
Charitable 303307 303307 303307 303307 272976 181984 151654 121323 181984 303307 303307 303307 3,033,071
Total 380857 380857 380857 380857 342771 228514 190429 152343 228514 380857 380857 380857 3,808,571
COGS (incl. labor) 239857 239857 239857 215871 143914 119929 95942.8 143914 239857 239857 239857 2,398,571
Gross Profit 239857 141000 141000 141000 126900 84600 70500 56400 84600 141000 141000 141000 1,410,000
Expenses:
Salaries-Retail 8928 8928 8928 8928 8928 8928 8928 8928 8928 8928 8928 8928 107,143
Salaries-Pack/Ship 16070 16070 16070 16070 16070 16070 16070 16070 16070 16070 16070 16070 192,851
Salaries-Office 13392 13392 13392 13392 13392 13392 13392 13392 13392 13392 13392 13392 160,714
Salary-Pack/Ship Mgr. 5357 5357 5357 5357 5357 5357 5357 5357 5357 5357 5357 5357 64,286
Salary-Delia 13392 13392 13392 13392 13392 13392 13392 13392 13392 13392 13392 13392 160,714
Payroll Taxes 5952 5952 5952 5952 5952 5952 5952 5952 5952 5952 5952 5952 71,428
Workers Comp. Insurance 3333 3333 3333 3333 3333 3333 3333 3333 3333 3333 3333 3333 40,000
Health Insurance 14285 14285 14285 14285 14285 14285 14285 14285 14285 14285 14285 14285 171,429
Sales Commission 15,165 15165.3 15165.3 15165.3 13648.8 9099.18 7582.65 6066.12 9099.18 15165.3 15165.3 15165.3 151,653
Rent-Retail 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 24,000
Rent-Pack/Ship 842 842 842 842 842 842 842 842 842 842 842 842 10,114
Rent-Office 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 15,000
Utilities-Retail 714 714 714 714 714 714 714 714 714 714 714 714 8,571
Utilities-Pack/Ship 952 952 952 952 952 952 952 952 952 952 952 952 11,429
Utilities-Office 214 214 214 214 214 214 214 214 214 214 214 214 2,571
Supplies-Retail 535 535 535 535 535 535 535 535 535 535 535 535 6,429
Supplies-Pack/Ship 7142 7142 7142 7142 7142 7142 7142 7142 7142 7142 7142 7142 85,714
Supplies-Office 714 714 714 714 714 714 714 714 714 714 714 714 8,571
Prop & Casualty Insurance 714 714 714 714 714 714 714 714 714 714 714 714 8,571
Product Liability Insurance 535 535 535 535 535 535 535 535 535 535 535 535 6,429
Licenses and Taxes 476 476 476 476 476 476 476 476 476 476 476 476 5,714
Telephone 714 714 714 714 714 714 714 714 714 714 714 714 8,571
Extermination Expense 535 535 535 535 535 535 535 535 535 535 535 535 6,429
General Maintenance 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 30,000
Advertising 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 45,000
Depreciation 9523 9523 9523 9523 9523 9523 9523 9523 9523 9523 9523 9523 114,286
Professional Fees 3570 3570 3570 3570 3570 3570 3570 3570 3570 3570 3570 3570 42,847
Total Expense 156046 156046 156046 156046 140442 93627.8 78023.2 62418.6 93627.8 156046 156046 156046 1,560,464
Net Income before taxes -15046 -15046 -15046 -15046 -13542 -9027.8 -7523.2 -6018.6 -9027.8 -15046 -15046 -15046 -150464