Mr. Ken is planning to start a new café called Ken Cafe in the year 2024. As a start Ken Cafe will sell one size cup of black: Management Accounting Course Work, UM, Malaysia

University Universiti Malaya (UM)
Subject Management Accounting

Mr. Ken is planning to start a new café called Ken Cafe in the year 2024. As a start, Ken Cafe will sell one size cup of black coffee. The budgeted income statement for the year 2024 based on the sales of 45,000 cups of coffee is presented as follows:

Management accounting

Ken has just concluded a budget meeting with his team of staff and is keen to implement one of the two proposals in order to maximize the profit of Ken Cafe for next year. As he is unfamiliar with cost-volume-profit analysis in the short-term decision-making process, you have been approached to calculate and interpret the management accounting information for the two proposals suggested below:

Proposal 1:

To utilize the ‘Food Panda’ delivery service which will result in an estimated sales volume (number of cups of coffee) increase by 10% whilst the selling price and cost behavior patterns are expected to remain unchanged.

Proposal 2:

To reduce the budgeted selling price per cup of coffee by 10% next year to boost demand and use a more expensive coffee bean currently priced at RM96 per kg but the targeted profit must be RM180,000. Each kilogram of coffee bean is assumed to make 40 cups of coffee. Other costs remain unchanged.

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