Cafes Monte Case

Topics: Cash flow, Costs, Cost Pages: 13 (663 words) Published: October 13, 2013
Cafes Monte Bianco Case

Context:

The company located in Milan, Italy.
It was found by Mario Salvetti as a manufacturer and distributor of premium finest coffees. The company faces a hard decision that may affect their future. The company wants to know whether or not they should keep working in the same investing. An important meeting was there among the top management team’s members to discuss the future of the company. The company’s performance was good in 2000. Profit was shown at the financial statement. Giacomo Salvetti the CEO of the company needs to decide which to choose as the business strategy for the company: 1) Keep working in the premium coffee market.

2) Transfer to the private brands market.
The current capacity of the coffee production in 2000 was 350,000 K/M , with added additional capacity of 150,000K/M. The cost of the additional units was 6 billion liras. More facts about the profitability and the liquidity were required beside the cash flow and the profit plan to quantify strategic alternatives and to help in making this decision. The idea of changing was not easy to the CEO to accept without a clear image of the financial consequences. The report was provided by the marketing manager showed that the premium market is very volatile. On the other hand, the private brands market is more stable. (Full capacity at the price of 8,800 liras). Price is lower in the private market than the premium. The volume is depending of the number of retailers. ( Every additional retailer need at least 500,000 K/Y). The report was provided by the manufacturing director showed that costs are different in each amount of the volume and quality of beans. These costs include the cost of beans, labor and fixed cost. The company is able to save 65% of selling costs, 75% of R&D costs and 50% of administrative costs, if they choose the private brands market.(Director of strategic planning). Private brands’ retailers will pay slowly- 90 days instead of 30 days. (Financial officer).

2)

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Sales private (Exp.5)
426,000
540,000
708,000
450,000
486,000
300,000
252,000
198,000
408,000
786,000
726,000
720,000
Revenue (sales*8,800)
3,748,800
4,752,000
6,230,400
3,960,000
4,276,800
2,640,000
2,217,600
1,742,400
3,590,400
6,916,800
6,388,800
6,336,000

Cash (90days)

Jan
1,249,600
1,249,600
1,249,600

Feb

1,584,000
1,584,000
1,584,000

Mar

2,076,800
2,076,800
2,076,800

Apr

1,320,000
1,320,000
1,320,000

May

1,425,600
1,425,600
1,425,600

Jun

880,000
880,000
880,000

Jul

739,200
739,200
739,200

Aug

580,800
580,800
580,800

Sep

1,196,800
1,196,800
1,196,800

Oct

2,305,600
2,305,600
2,305,600

Nov

2,129,600
2,129,600

Dec

2,112,000

Cash opining=
9,368,467 (50% Jan & 25% Feb &Mar)
4,684,234
2,342,117
2,342,117

Total Cash
5,933,834
5,175,717
7,252,517
4,980,800
4,822,400
3,625,600
3,044,800
2,200,000
2,516,800
4,083,200
5,632,000
6,547,200

3) Variable cost and selling expenses:

Production private
(6600 pre K)
Variable cost

Sales (%)
Selling expenses
Jan
500,000
*6600
3,300,000

7.10%
88,832
Feb
500,000
*6600
3,300,000

9.00%
112,603
Mar
500,000
*6600
3,300,000

11.80%
147,636
Apr
450,000
*6600
2,970,000

7.50%
93,836
May
486,000
*6600
3,207,600

8.10%
101,343
Jun
390,000
*6600
2,574,000

5.00%
62,557
Jul
500,000
*6600
3,300,000

4.20%
52,548
Aug
500,000
*6600
3,300,000

3.30%
41,288
Sep...
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