Link To Coffee Shop Media Plan

Link To Coffee Shop Httpextmediakaplanedubusinessmediaab299t

Analyze the impact of new large businesses moving into the surrounding area on the coffee shop's financials by creating a pro forma income statement for the upcoming year. Discuss whether each line item—income earned and expenses including salaries, rent, depreciation, supplies, lease, tax, interest, and insurance—will increase, decrease, or remain unchanged due to increased sales volume, providing justification and assumptions where necessary. Explain whether total expenses and net profit are projected to increase or decrease based on your assumptions.

Paper For Above instruction

The presence of large new businesses moving into the vicinity of the coffee shop is likely to significantly influence its financial performance in the upcoming year. Anticipated increases in customer foot traffic, particularly from employees working in the new establishments, will impact both the revenue streams and the associated costs. This paper aims to analyze these potential changes, offering reasoned projections for each line item of the pro forma income statement, supported by logical assumptions related to increased sales volume.

Income Earned

The primary driver of change in the income statement is the expectation of increased revenue. The influx of large businesses is likely to result in a surge of office workers and visitors, which will boost the coffee shop's sales volume. Consequently, the income earned from sales of coffee, beverages, and snacks is projected to increase. This assumption aligns with typical consumer behavior, as nearby workplaces usually generate a steady flow of customers seeking convenient food and beverage options. The magnitude of this increase will depend on the effectiveness of the coffee shop's capacity to attract and serve this additional customer base. However, for the purpose of the pro forma, it is reasonable to assume a substantial rise in income due to the anticipated new customer demographic.

Expenses

Salaries

Given the expected increase in customer volume, the coffee shop may need to hire additional staff or increase hours for existing employees. This would result in higher salary expenses, reflecting the need to accommodate increased service demand. If the current staffing level is already sufficient, additional wages might still be incurred through overtime or temporary help.

Rent

Rent is usually a fixed expense based on lease agreements, and thus, this line item is likely to stay the same unless the coffee shop moves to a larger premises or renegotiates its lease terms. Since the scenario does not specify relocating, rent expenses are expected to remain constant.

Depreciation

Depreciation reflects the allocation of costs related to physical assets such as equipment and furniture. Unless the coffee shop invests in new equipment to cater to increased demand, depreciation expenses will stay relatively unchanged.

Supplies

Supplies, including coffee, cups, lids, napkins, and other consumables, will likely increase proportionally with sales volume. The higher customer throughput necessitates larger quantities of supplies, leading to an increase in this expense category. The exact increase depends on the extent of sales growth and efficiency improvements in supply management.

Lease (on refrigerator and other equipment)

If the lease pertains solely to equipment that remains unchanged, this expense will stay level. However, if additional equipment is leased to expand capacity, lease expenses would rise accordingly. In this analysis, we assume no new leases are obtained, so the expense remains steady.

Tax

Tax obligations linked to income will increase as revenue grows, assuming income taxes are calculated based on earnings. Higher sales and incomes imply a higher tax liability, leading to an increase in tax expenses.

Interest

If the coffee shop has existing loans and plans to finance any expansion or renovation, interest expenses could increase. In the absence of new borrowing, interest expenses are expected to stay constant. For this analysis, we assume no new loans are incurred, so interest expenses remain unchanged.

Insurance

Insurance premiums might increase if the business expands physically or increases inventory and assets. If the current insurance policy covers such growth, premium costs could rise to reflect the increased risk and coverage. Alternatively, if no expansion occurs, insurance expenses stay the same.

Summary of Financial Changes

Based on these assumptions, total expenses are projected to increase primarily due to higher sales volume necessitating more supplies and possibly increased staffing. Expenses such as rent, depreciation, lease, interest, and insurance are likely to stay constant unless physical expansion or additional assets come into play.

Impact on Total Expenses and Net Profit

The increase in revenue, driven by higher sales, is expected to result in higher gross income. If the proportional rise in expenses remains less than the increase in income, the net profit of the coffee shop will likely improve. Since many expenses are variable and tied directly to sales volume (such as supplies and salaries), their increase should be manageable relative to income growth, leading to a net profit increase. However, fixed expenses like rent and depreciation will contribute to higher total expenses only if significant physical expansion occurs. Overall, under the assumption of increased sales without substantial additional fixed costs, the net profit should improve due to enhanced operational efficiency and higher revenue margins.

Conclusion

The anticipated influx of customers from new neighboring businesses will substantially boost the coffee shop's income, which, balanced against the variable nature of many expenses, is expected to lead to higher net profit. Key to this positive outcome is the alignment of increased revenue with manageable cost increases, particularly in variable expenses such as supplies and wages. Strategic planning to optimize capacity and control costs will further enhance profitability during this growth period.

References

• Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2014). Introduction to Management Accounting. Pearson.
• Libby, T., Libby, R., & Short, D. G. (2019). Financial Accounting. McGraw-Hill Education.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
• Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
• Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management. Cengage Learning.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2016). Corporate Finance. McGraw-Hill Education.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
• Van Horne, J. C., & Wachowicz, J. M. (2009). Fundamentals of Financial Management. Pearson.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis. McGraw-Hill Education.
• Anthony, R. N., Hawkins, D. F., & Merchant, K. A. (2013). Accounting: Texts and Cases. McGraw-Hill Education.