Budgeting and management control systems Individual assignment #1 – Matteo Ambrogini CASE: Cafè Xaragua
Questions 1) Prepare a forecast for the first year of operations using the information provided in the case. Clearly identify your assumptions.
See the frame used to analyze the case in Exhibit 1, the forecast in Exhibit 2, a breakdown of costs calculations in Exhibit 3, a breakdown of “Equipment & Fixture” costs and time allocation of all fixed costs in Exhibit 4. ASSUMPTIONS MADE (refer to the framework shown in exhibit 1 to identify each element: Price, Quantity, Fixed costs, Variable costs): General Assumptions: I assumed the cafè to stay opened 50 weeks, 350 days per year. Price: All data available from the case. No assumptions needed. Quantity:     200-300 drinks per day, assumed 250 Assumed 1 drink per customer, so 250 customers per day 50% of customers purchasing a baked good, so 125 baked goods per day 10% of customers purchasing a bag of coffee, so 25 bags of coffee per day

Fixed Costs:  Assumptions on useful life of fixed assets and on allocation periods are reported in exhibit 4. The useful life of fixed assets and equipment has been estimated by research and personal experience. I assumed legal fees, permits etc. to be renewed every 10 years, the property to be improved and maintained every 10 years, the roaster installation cost to be allocated over time coherently to its assumed useful life of 5 years.

Variable Costs: All data available from the case. No assumption needed. [216 words]

2) Comment on the key assumptions that drive the results of your forecast. Are the assumptions realistic? How sensitive are the results to the key assumptions? How much would the results change as you change assumptions?
The key assumptions are: 250 drinks served per day, 1 customer per drink. All the subsequent data on sales is dependent on these. I