Home / Expert Answers / Accounting / the-daily-grind-twelve-months-ago-david-opened-a-coffee-shop-the-daily-grind-in-mercy-hospital-39-pa441

(Solved): The Daily Grind Twelve months ago, David opened a coffee shop, The Daily Grind, in Mercy Hospital' ...

The Daily Grind Twelve months ago, David opened a coffee shop, The Daily Grind, in Mercy Hospital's former gift shop. David was confident that he had the knowledge to make a success of this new business. He produced a quality product that people needed, had priced the product to be very competitive, and had a great location in a high-traffic area of the hospital. Material Costs The Daily Grind uses a specialty brand of Kona coffee beans costing $8 per pound. Each pound of coffee beans produces 256 ounces of coffee. Coffee is sold in three sizes: a small cup holding 8 ounces, a medium cup holding 12 ounces, and a large cup holding 16 ounces. The cups needed to serve the coffee cost $.05 for the small cup, $.06 for the medium cup, and $.07 for the large cup. Lids cost $.03 per cup and are the same regardless of cup size. Sleeves cost an additional $.04 per cup. On average, sugar and cream cost $.02 per cup for small cups, $.03 for medium cups, and $.04 for large cups. Labor Costs The Daily Grind is open 12 hours each day, 7 days a week (365 days per year), and is staffed with three employees during the morning shift (7:00-11:00), two employees from 11:00 until 3:00, and three employees from 3:00 to 7:00. Labor is a fixed cost, because the employees are paid regardless of whether coffee is sold. David worked 60 hours each week, on average, and was paid a salary of $30,000 during the first year of operations. Fringe benefits for David, including health insurance and payroll taxes, accounted for an additional $10,000 of costs for the company. Part-time employees work an average of 24 hours each week and are paid $9 per hour. Payroll taxes and other costs average about $1.00 per hour for part-time employees. As shown in the following table, part-time employees worked from 656 hours to 727 hours each month: Month Part-time Employee Labor Hours January 722 hours February 656 hours March 727 hours April 705 hours May 727 hours June 705 hours July 727 hours August 727 hours September 705 hours October 727 hours November 705 hours December 727 hours Overhead Costs During the first year of operations, the hospital charged rent of $2,000 per month. As part of the rental cost, the hospital provided furniture and fixtures for the shop, as well as nightly cleaning services. David leased a drip coffeemaker, refrigerator, coffee grinder, scale, and cash register for $150 per month, total. David paid directly for his utilities (electricity and water). The costs of electricity include the costs of heating and cooling the shop. as well as the cost of running the electric appliances (refrigerator, coffeemaker, etc.). For the first 12 months of operations, utility expenses were as follows: Appendix B: The Daily Grind1 Selling and Administrative Costs David incurred $200 a month in accounting fees and spent $500 on various promotional and advertising materials during the year. He also paid $1,000 for liability insurance. Sales Revenue During the first year of operations, David set the shop's prices to be slightly lower than their competitors'. The Daily Grind sells a small cup of coffee for $1.25, a medium cup for $1.65, and a large cup for $1.95. Sales revenue was as follows: Month Sales in Cups of Coffee *Coffee sales average 10% small cups (8 ounces), 50% medium cups (12 ounces), and 40% large cups (16 ounces). January 9,300 cups* February 9,800 March 10,850 April 9,500 May 9,300 June 9,000 July 8,800 August 8,600 September 11,000 October 11,620 November 12,000 December 12,400 Requirements 4. Prepare an income statement for The Daily Grind for the last year. You can assume that there are no inventories on hand at the end of the year. (All coffee and supplies purchased during the year are consumed.) . Question: David would like to increase sales in the second year of operations so that he may raise his salary to $50,000 (not including $15,000 of fringe benefits) while reducing his workload to 40 hours per week with two paid weeks of vacation during the year. Reducing his workload will require increasing the number of hours worked by part time employees by 1,080 hours per year. Assume the introduction of extra-large cup and the new sales mix as discussed in requirement 10. What level of annual sales would be required in order for David to reach his goal?

We have an Answer from Expert

View Expert Answer

Expert Answer

We have an Answer from Expert

Buy This Answer $5

Place Order

We Provide Services Across The Globe