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Bake Me a Cake Case Solution

Solution Id Length Case Author Case Publisher
518 1068 Words (4 Pages) Elizabeth M.A. Grasby and Ian Dunn Ivey Publishing : W13020
This solution includes: A Word File A Word File and An Excel File An Excel File

BMAC had successfully built a customer base despite operating at a very small scale using home space for bakery. Its ability to compete with other local bakeries of the comparable size, despite having small infrastructure was the true strength of the bakery as it indicated its success in building a brand name. However, in order to further expand the business, significant investments were required to enable the bakery to cater to the growing demand. The biggest weakness of the bakery was its small portfolio of products. While other bakeries were offering Breads/Bagels, Cakes, Pasteries/Deserts, Cakes ready for sale, Custom Cake designs and 3-D Sculpted cakes, BMAC was offering only three i.e. Cakes, 3-D Sculpted cakes, Cupcakes and Custom Cake designs. 90% of the US retail bakery sales comprised of Bread, Bagels and Pastry Sales, while BMAC was not even offering these products.

Following questions are answered in this case study solution:

  1. What are Bake Me a Cakes strengths and weaknesses?

  2. What are the pros and cons of renovation the family home vs leasing a location?

  3. What are the advantages and disadvantages to increasing cupcake prices?

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Bake Me a Cake Case Analysis

1. What are Bake Me a Cakes strengths and weaknesses?

BMAC had successfully built a customer base despite operating at a very small scale using home space for bakery. Its ability to compete with other local bakeries of the comparable size, despite having small infrastructure was the true strength of the bakery as it indicated its success in building a brand name. However, in order to further expand the business, significant investments were required to enable the bakery to cater to the growing demand. The biggest weakness of the bakery was its small portfolio of products. While other bakeries were offering Breads/Bagels, Cakes, Pasteries/Deserts, Cakes ready for sale, Custom Cake designs and 3-D Sculpted cakes, BMAC was offering only three i.e. Cakes, 3-D Sculpted cakes, Cupcakes and Custom Cake designs. 90% of the US retail bakery sales comprised of Bread, Bagels and Pastry Sales, while BMAC was not even offering these products.
Perform a size up of the industry. Identify the threats and opportunities. Analyze the statement of cash flows for the year ended December 31, 2011 Analyze the relevant financial ratios of the company.

One of the major threats to the baking industry was the recent trend of increase in the prices of the bakery ingredients, particularly wheat. Furthermore, competition in the retail bakery segment was huge as it was a labor intensive industry and therefore, threat of new entrants was significant. On the other hand, opportunities for growth in this segment of industry were huge as sales in the retail bakery segment had shown an increasing trend.  Since all of the sales are dealt in cash, therefore, cash flow of the BMAC was very healthy and Bourgon was able to convert the earnings into cash easily. Furthermore, since most of the sales were order based, inventory investments were very low due to which inventory turnover was very high. Gross profit of the bakery remained around 60% in both years and net profit ratio remained around 20% which shows that operating expenses were very high and they consumed almost 40% of the revenue of the bakery. Returns on assets and equity were very high because of low asset base of the bakery as it was a labor intensive business and capital expenditures were not very high. Interest coverage ration remained very high i.e. 33 for year 2011, which meant that risk of default for the bakery was very low.

2. What are the pros and cons of renovation the family home vs leasing a location?

The total costs of renovating the Family home are $34,950 which includes constructions costs, Building Permit costs, furnishings, New Appliances and Signage. Since the bank loan is limited to only 75% of the construction costs, the rest of amount of $15,450 has to be contributed by owner of the bakery. The pros and cons of renovating versus leasing options can be evaluated by comparing the impact of both of these options on the profitability of the bakery. In order to project the income statement of bakery for year 2012, it has to be assumed that cost elements whose estimates for year 2012 are not given in the case will remain as same % of revenue as they were in year 2011.

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