Running head: BAKE ME A CAKE CASE STUDY
Bake Me A Cake Case Study
Lia Pichardo 16-0755
Ricardo Rodriguez 16-0593
Nathalia Amelia Vargas 16-0699
Managerial Accounting
Universidad Iberoamericana
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BAKE ME A CAKE CASE STUDY
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1. What are Bake Me a Cake’s Strengths and Weaknesses?
Strengths:
 BMAC focuses on giving the customer exactly what they want by giving them many
choices for customization.
 It is a well-known brand with a loyal customer base.
 It has experience in the food industry.
Weaknesses:
 The company does not have customers from all classes of society.
 Since it is a labor intensive business, quality management and improvement is difficult.
 The work is done in the owner’s home.
 The cakes are custom order, there is no availability of pre-made cakes.
2. Complete a competitive analysis.

Walmart, Loblaw, Metro: They have pre-made cakes available for sale, but offer little to
no customization. Prices are lower than BMAC.

Global Donuts: They have huge variety in cake at lower prices than BMAC but limited
quantities.

Sticky fingers: They make pre made cakes on which no customization is allowed but had
slightly lower prices compared to BMAC.

Junior bakers: wide variety (offered gluten-free options) along with unique designs and
3D cakes, but prices are higher than most competitors.
3. Analyze the company Statement of Cash Flow for the year ended December 31, 2011.
Operating Activities:
This is the key source of a company's cash generation. It is the cash that the company produces
internally as opposed to funds coming from outside investing and financing activities.
These means that BMAC produce a total of $22,619 in cash.
Cash Flow from Financing
Debt and equity transactions dominate this category. Companies continuously borrow and repay
debt. It's cash, not profits, that is used to pay dividends to shareholders. We can see that the
majority of the financial activities come from the Drawing that Amy did in the year 2011, that
was $24,817.
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BAKE ME A CAKE CASE STUDY
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Cash Flow from Investing
For the most part, investing transactions generate cash outflows, such as capital expenditures for
plant, property and equipment, which in this case is $2,152 of long term asset purchases.
We can see that BMAC spent more cash than it produced in the year 2011, starting with $3,207
and ending with $2,689. In most cases when the cash flows increase that means that sales
increase as well, but in this case because the cash flow was negative, it means that there was a
decline in the sales of BMAC.
4. Analyze the relevant financial ratios for Bake Me a Cake.
The company shows a good performance as compared to the past year as it earned a net profit
margin of 21.8% as compared to 14.7% last year. It is also good compared to the 5.2% of the
market. This may be an indicator that the business may become even more profitable in the
future.
In terms of liquidity, the company has fewer liabilities to the net worth ratio of 70.2% as
compared to 89.6% for the market. This shows that the company is able to pay its debt in the
long term. This is important because the company is able to take long term loans in order to
invest on the business without risk of defaulting. However, the company has little short term
liquidity of 0.5, which may mean problems paying for other obligations (wages, utilities, etc.).
5. Outline the pros and cons of renovating the family home versus leasing a location.
Complete a differential analysis for these two alternatives.
Alternative 1: Renovation
Pros:
Bourgon’s personal savings can cover up to $20,000 worth of investments.


The business will stay at the same place as before (customers will not have to remember a
new address).
Cons:

A lot would be spent on advertising to create buzz and get new customers.

Improvement in business operations is uncertain.
Alternative 2: Lease a Location
Pros:

Located in a centric location, with more exposure to passerby.
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BAKE ME A CAKE CASE STUDY
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Opportunity of selling ready-made cupcakes.
Cons:

Waste and spoilage expense due to implementation of ready-made cupcakes.

Can only use personal savings for lease and improvements.
The Differential Analysis:
Bourgon needed to grow the business from her family's kitchen, as she broke down the
expansion in clients from most recent three years. Along these lines, she has picked two options;
one is to renovate the home area by making a different space for business, and other option is
renting the area that will give a popularize area to her bakery. Therefore, she needs to choose that
whether it is ideal to invest her cash in business or to invest it into market.
After doing the calculations with the two options Bourgon should choose the Leasing option,
because it has less costs than renovating the house.
Renovating
Sales
revenue
Fixed costs:
$103,022
Building Permit
Bank Loan
Interest
Décor
Advertising
New signage
Appliances
Utilities
Owner's personal
savings
Rent
Waste and spoilage
Insurance
Moving costs
Leasehold
improvements
-$500.00
-$19,500.00
-$1,106.00
-$1,750.00
-$450.00
-$1,500.00
-$5,200.00
-$6,850.00
Leasing
$111,422
-$1,312.50
-$450.00
-$5,000.00
-$9,000.00
-$1,325.00
-$2,780.00
-$800.00
-$1,800.00
Variable
costs:
Labor
-$1,290.00
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-$2,580.00
BAKE ME A CAKE CASE STUDY
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Total costs
-$38,146.00
$64,876.00
Profit
-$25,047.50
$86,374.50
6. What are the advantages and disadvantages to increasing cupcake prices? Calculate the
direct cost per cupcake? What would the contribution from cupcakes sales be for the
suggested price points?
The advantages of increasing cupcake prices are that the contribution from each cupcake will be
higher, and the extra money can be used for investments. The disadvantage is that increasing
price leads to lower sales.
Item
Flour
Sugar
Icing sugar
Shortening
Egg whites
Vanilla extract
Butter extract
Eggs
Total cost per batch
Total cost per cupcake
Yield
(bathes)
Cost
21
50
35
40
43
24
71
34
Cost per
batch
25
60
20
40
36
200
200
90
0.84
0.83
1.75
1.00
1.19
0.12
0.36
0.38
6.47
0.54
Cost of one cupcake: $0.54
Current price: $2.00
Contribution at current price: $2.00 - $0.54 = $1.46
Yearly contribution: 180 cupcakes * 50 = 9,000 * $1.46 = $13,140
Price at $2.25
Contribution at $2.25: $2.25 - $0.54 = $1.71
Yearly contribution: (9,000 cupcakes - 10%) * $1.71 = $13,851
Price at $2.50
Contribution at $2.50: $2.50 - $0.54 = $1.96
Yearly contribution: (9,000 - 25%) * $1.96 = $13,230
If Bourgon were to increase the price, she will benefit more if she increases it to $2.25.
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BAKE ME A CAKE CASE STUDY
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7. Prepare a projected statement of earnings and balance sheet for the year ended December
31, 2012.
Projected Statement of Earnings
For the year ending Dec 31, 2012
Revenue
Food Costs
Gross Profit
Operating Expenses
Wages
Cake Pans & Baking Supplies
Utilities
Spoilage & Waste
Phone, Cable & Internet
Uniforms
Advertising
Maintenance & Cleaning
Insurance
Amortization
Fuel
Miscellaneous
Bank Fees
Interest Expense
Total Operating Expenses
$103,022.00
$24,268.00
$78,754.00
$16,840.00
$1,599.00
$11,712.00
$$1,000.00
$424.00
$2,430.00
$1,344.00
$3,240.00
$3,421.00
$2,000.00
$1,820.00
$275.00
$1,106.00
Net Profit
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$47,211.00
$31,543.00
BAKE ME A CAKE CASE STUDY
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Projected Balance Sheet
As at Dec 31, 2012
ASSETS
Current Assets:
Cash
Inventory
Total Current Assets
Long-term Assets
Appliances
Less: Accum. amort., appliances
$4,000.00
$1,651.00
$5,651.00
$7,730.00
$1,204.00
$6,526.00
Cake Stands & Display Cases
Less: Accum. amort., stands & cases
$1,165.00
$513.00
$652.00
Computer Equipment
Less: Accum. amort., computer equipment
$1,964.00
$1,452.00
$512.00
Vehicle
Less: Accum. amort., vehicle
Total Long-term Assets
$16,805.00
$6,723.00
Total Assets
LIABILITIES & OWNER'S EQUITY
Liabilities:
Accounts Payable
Line of Credit
Total Liabilities
$10,082.00
$17,772.00
$23,423.00
$350.00
$3,073.00
$3,423.00
Owner's Equity
Amy Bourgon, capital
$20,000.00
Total Liabilities & Owner's Equity
$23,423.00
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BAKE ME A CAKE CASE STUDY
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