ACF 92 Project

Math in Business

Directions:

The final product must be typed and professional.

Use the information in this packet to answer the questions given. Each answer must be supported computationally. Explaining how you get to the answer is just as important as having the correct answer. Answers with money should be rounded to the nearest cent. Answers containing fractions should be reduced to lowest terms.

GRAND OPENING OF CLAUDINE’S CAMPUS CAFÉ ON WEDNESDAY, JANUARY 2, 2009

Part 1 - Start Up Costs

In December Claudineprepares to open a business called Claudine’s CampusCafé in Bloomfield, New Jersey.

Loan Costs:

Claudine applies for a small business loan and will open hercafe beginning in January. She obtains a loan of $130,000 at 4.5% simple interest for 10 years.

1) What will the interest be on the business loan?

2) What will be the total amount to be repaid on the loan?

3) What will the monthly payment be on the loan?

Now that Claudine has the money from the loan (known as capital), she can begin the process of opening her Café.

Building/Lease Space Start-up Costs:

  • For a 1500 square foot rental space, the lease will be $2,000 per month. One and one-half month’s rent is required as a security deposit.
  • Claudine will pay a one time total of $150 for town fees (plumbing & electricity inspection, fire inspection, etc.).
  • The general liability insurance will cost $750 per year.

4) What is the total start-up cost associated with the building?

Utilities Costs:

  • The water company requires a $100 deposit to turn on the water supply.
  • The gas and electric company requires a $100 deposit to turn on the electricity.
  • The phone company requires a $100 deposit for each phone installation plus $70 for each phone line activated. The Café will have 2 phones.
  • Wireless internet installation costs $100.

5) What are the total start-up costs for utilities?

Renovation Costs:

Claudine did some research on which local contractors would give her a better bargain to do the renovations for the Café. Two contractors, A.F Contractors and J.M. Contractors,guaranteed the job would be completedin 2 weeks while other contractors said 3 weeks or more.

  • A.F. Contractors offered Claudine $22 per hour per employee working 8 hours per day, 5 days a week. A.F. Contractor will also charge $10 per hour for their management. Four employees will renovate the Café.
  • J.M. Contractors offered Claudine $20 per hour per employee working 8 hours per day, 5 days a week plus $2000 for materials. Four employees will renovate the Café.

6) What will be the renovation costs if A.F. Contractors is chosen?

7) What will be the renovation costs if J.M. Contractors is chosen?

8) Claudine will hire the contractor who charges less. Which contractor will Claudine hire?

Advertisement Costs:

Claudine decided to advertise the opening of her café by posting fliers around town and running ads on the local radio, their website and in the local newspaper.

  • Print ‘Em Fast,in Montclair, offered Claudine the better deal; 500 fliers for 8¢ per copy.
  • The local radio station charges different rates for prime time slots. Prime time is during 7:00 am – 9:00 am and 4:00 pm -6:00 pm. The station charges $500 per spot for prime time and $250 per spot for all other times. Claudine will advertise at 8:30 am, 11:30 am, 2:30 pm, and 5:00 pm for 3 days before her grand opening.
  • The local radio station has agreed to display a 1” square ad on it’s home page ad banner, Fridays only, for $25 per Friday.
  • The local newspaper offers four different options for advertising.

Business Card Size (1/8 of a page): $59 per day

¼ Page: $109 per day

½ Page: $149 per day

Full Page: $179 per day

Claudine will run a full page ad on Friday, Saturday, and Sunday of her grand opening weekend.

9) What is the total cost for advertising with fliers?

10) What is the total cost for advertising on the local radio?

11) What is the total cost for advertising in the local newspaper?

Supplies Costs:

Claudine purchased $6000 worth of equipment, $1000 worth of dinnerware, napkins, etc, and $3500 worth of food supplies.

12) What is the total cost associated with supplies?

Start Up Costs:

There are many details to work out when opening any business; creating a vision for what the business should be and then the cost of realizing that vision. Claudine envisioned a place where friends, family, and couples would gather in a cozy setting to talk about their dreams, what’s been going on in their lives, or to discuss world events while having something to eat and drink. Claudine calculated the start up costs to open that Café where people could come together. The start up costs includes the building costs, utilities costs, renovation costs, advertisement costs and supplies costs.

13) What isClaudine’s total start up cost?

Part 2 – The First Year’s Expenses

Claudine is now open for business. Claudine’s Café will be open six days a week (closed on Mondays) and open from 10:00 am to 4 pm.

The following are Claudine’s expenses for running the Café throughout the year.

Building, Utilities and Supplies Costs:

  • Lease Payments$2000 per month
  • Loan Paymentamount found in #3
  • Gas and Electric $300 per month
  • Telephone$100 per month
  • Water$100 per month
  • Re-Order Paper Supplies$400 per month
  • Re-Order Food Supplies$1000 per month
  • Wireless Charges$100 per month

14) What is the total amount of monthly building, utilities, and supplies expense?

Advertisement Costs:

  • Claudine has decided to continue running ads on the local radio for the first 3 months (January, February, and March) she will be in business. She will run the ads every Friday at 8:30 am and 5:30 pm. (Hint: Look at a calendar.)
  • Claudine has decided to run the 1” square Friday-only web ad for the first Friday of each of January, February, and March.
  • Claudine has decided to run a ½ page ad in the local newspaper every Friday, Saturday and Sunday for the entire year.

15) What is the monthly advertisement expense for the local radio station?

16) What is the monthly advertisement expense for the newspaper?

Employee Costs:

  • A waitress works all hours in which the Café is open. The waitress’s pay rate is $2.15 per hour plus any tips she receives from the customers.
  • A counter person helps open the café and works during the busiest times, 9 am–4:00 pm. The counter person’s pay rate is $5.50 per hour.
  • The cook works all hours the Café is open. The cook’s pay rate is $8.50 per hour.

17) How much does Claudine pay monthly for her employee wages?

Taxes:

  • Claudine pays employee taxes. The employee tax in New Jersey is 18% of employee’s gross earnings.
  • Claudine will also pay a 15 ½ % tax on herincome. The tax is paid quarterly.

18) How much does Claudine pay monthly in employee taxes?

19) Once the Café’s income has been calculated, how much tax does Claudine pay quarterly?

Total Expenses:

20) What is the total expense for Claudine’s Campus Café for the first 3 months (January, February, and March)?

21) What is the total expense for Claudine’s Campus Café for the remaining 9 months?

22) What is the total expense for the year including the start up costs for Claudine’s Campus Café?

Part 3 – The First Year’s Income

Claudine has her café decorated to create a cozy ambiance. She has hired friendly, but responsible waitresses and counter staff. Claudine’s cook makes mouth watering food but is also efficient. Claudine feels good that her Café is off to a successful and money-making start.

Claudine’s Campus Café is the busiest between 1 pm and 4 pm. The Café averages $13,500 per month during that time and is 75% of the Café’s monthly income.

23) What is the total monthly income for Claudine’s Campus Café?

24) What is the total yearly income for Claudine’s Campus Café?

Part 4 – The First Year’s Profit or Loss

Claudine has been in business for a year. The employees were reliable and an asset to the Café. Claudine saw customers return to enjoy the cozy atmosphere she created. All in all, Claudine feels the year was a success. However, does the number-crunching agree with her?

The end of the year Profit & Loss Statement is a fast and easy way to see how a business faired in its first year. It compares revenue for the year to expenses for that same year and determines if the business has made a profit.

25) What was Claudine’s profit or loss for the first 3 months (January, February, and March) of the Café’s opening?

26) What was Claudine’s profit or loss for the remaining 9 months?

27) What was Claudine’s profit or loss for the entire year?

28) Will Claudine be able to keep her café open for the next year?

29) Going into the second year of business, repairs and improvements need to be made for the Café to run more smoothly. Claudine will need to purchase a second commercial refrigerator/freezer for $43,500 and another commercial oven for $15,500. Also, Claudine would like to upgrade the seating and decorations for $10,000. Will Claudine be able to make the purchases and upgrades?