Bobbins Family adventures
Bobbins Family Adventures
Tea shop
Issue: Will the tea shop be profitable?
Analysis
Bobbin welcomes about 500 guests each weekend during their peak season which means 2000 customers in a month.
We assume that each customer will buy a beverage and out of every five customers, 3 of them will buy a pastry.
A profitability analysis based on 12000 beverages sold and 7200 pastries sold in the 6 month peak period is shown in Exhibit 1
Based on this analysis, bobbins will incur a loss of $21250 in their first 6 months of operation
These 6 months is bobbins peak period which means the number will be much worse for the rest of the year
There are some one-time costs that will only be incurred in the first year of operations but the amount is still not enough to offset the loss in the following years. Also, the tea shop is already operating at a loss even without the fixed costs.
Recommendation: Bobbins should not venture into the tea shop business as it will not be profitable for them
Wind Turbine
Issue: Should Bobbins purchase the wind turbine?
Analysis
Bobbins is only interested in purchasing the wind turbine if it is less expensive than their current electricity bills
Since the turbine has a useful life of 25 years, we should compare the current costs and the cost of the turbine over 25 years (See Exhibit 2)
Although the wind turbine may seem to be more expensive now, it is the cheaper option in the long run. The electricity bill, if it remains constant, will cost Bobbins $808,560 for 25 years while the wind turbine will cost only $582,295 in the same period.
The wind turbine will also produce 27,600 more kilowatts of electricity annually which will cover increases in bobbin’s electricity usage
The wind turbine is more sustainable and environmentally friendly
Recommendation: Bobbin’s should purchase the wind turbine as it is the less expensive option for the next 25 years.
Accounting issues
Revenue from Toby’s
Issue
Analysis
Recommendation
Tea shop
Issue: Will the tea shop be profitable?
Analysis
Bobbin welcomes about 500 guests each weekend during their peak season which means 2000 customers in a month.
We assume that each customer will buy a beverage and out of every five customers, 3 of them will buy a pastry.
A profitability analysis based on 12000 beverages sold and 7200 pastries sold in the 6 month peak period is shown in Exhibit 1
Based on this analysis, bobbins will incur a loss of $21250 in their first 6 months of operation
These 6 months is bobbins peak period which means the number will be much worse for the rest of the year
There are some one-time costs that will only be incurred in the first year of operations but the amount is still not enough to offset the loss in the following years. Also, the tea shop is already operating at a loss even without the fixed costs.
Recommendation: Bobbins should not venture into the tea shop business as it will not be profitable for them
Wind Turbine
Issue: Should Bobbins purchase the wind turbine?
Analysis
Bobbins is only interested in purchasing the wind turbine if it is less expensive than their current electricity bills
Since the turbine has a useful life of 25 years, we should compare the current costs and the cost of the turbine over 25 years (See Exhibit 2)
Although the wind turbine may seem to be more expensive now, it is the cheaper option in the long run. The electricity bill, if it remains constant, will cost Bobbins $808,560 for 25 years while the wind turbine will cost only $582,295 in the same period.
The wind turbine will also produce 27,600 more kilowatts of electricity annually which will cover increases in bobbin’s electricity usage
The wind turbine is more sustainable and environmentally friendly
Recommendation: Bobbin’s should purchase the wind turbine as it is the less expensive option for the next 25 years.
Accounting issues
Revenue from Toby’s
Issue
Analysis
Recommendation