Mind Your Own Beeswax (MYOB) is a small business that sells wax-based products, including candles and lip balms. The sole owner of MYOB is Beatriz Hives. Beatriz would like some advice about her business and has reached out to you, her accountant, for help.

Read the facts about Mind Your Own Beeswax and use what you’ve learned to answer the questions.

Mind Your Own Beeswax (MYOB) makes and sells three products, candles made from silicone molds (mold candles), candles sold in a jar (jar candles), and tubes of lip balm (lip balm).

MYOB sells its products at two farmers’ markets each week, with the help of two employees. The employees help sell the products but are not involved in the manufacturing process.

MYOB sells mold candles for $5 each, jar candles for $20 each, and lip balms for $7 each.

Making the Products

MYOB’s products are made from a combination of beeswax and coconut oil. Beeswax costs $8 per pound. Coconut oil costs $16 per pound. One pound of beeswax and ½ pound of coconut oil can make a batch of 32 mold candles or a batch of 10 jar candles. Mold candles use one wick, while jar candles are made with three wicks each. Candle wicks cost $10 for a package of 1,000 wicks. One pound of beeswax and one pound of coconut oil can make one batch of 50 lip balms.

Both jar candles and lip balm are scented with essential oils. Essential oils cost $10 per bottle and one full bottle is used in making a batch of either product. Mold candles are unscented and do not require essential oil.

Mold candles are made using silicone molds that cost $15 each. A mold can be used to make 100 candles before it must be replaced.

The wax/coconut oil/essential oil mixture is poured into jars to make jar candles. The jars cost $1 each.

The lip balm product is poured into tubes that cost $12 for 80 tubes.

In addition to the product costs above, MYOB has two employees who each make $20 per hour. The employees each work two days per week and each shift is five hours. MYOB pays $300 per week for the booth at one Farmer’s Market and $200 per week for the booth at the second Farmer’s Market. They spend approximately $30 per week on gas to travel to the markets and $101 per week on marketing. MYOB only accepts credit cards. The credit card company charges a fee of 4% of the amount charged (the sales price). MYOB does not track any other expenses.

MYOB has noticed that customers generally buy in a product mix of 15 mold candles to 5 jar candles to 20 lip balms.

NOTE: for this case study we will ignore all tax implications, both sales tax, and income tax.

Part 1

List all of MYOB’s costs and indicate whether each cost is FIXED or VARIABLE and whether it is a PRODUCT or PERIOD cost. (6 points) (Module 2)

Part 2

2.1 Calculate the total weekly fixed costs for MYOB. (2 points)

2.2 Calculate the per-unit contribution margin and contribution margin % for each of MYOB’s three products. (Module 7) (6 points)

2.3 Calculate the number of composite units and units of each product that MYOB must sell to break even each week. (Module 7) (8 points)

2.4 MYOB would like to make a Target Income (profit) of $3,093 each week. How many composite units and units of each product must they sell to earn this Target Income? (Module 7) (8 points)

Part 3

MYOB estimates their market demand to be such that they could sell 1,500 mold candles, 800 jar candles and 2,000 lip balms per month.

However, due to a harsh winter and rampant Colony Collapse Disorder, there is a shortage of beeswax. MYOB is only able to buy 100 pounds of beeswax per month. Using what you learned in Module 13 and ignoring any previously states established product mix, advise MYOB on how many units of each product they should produce to maximize profits, given the resource constraints presented by the wax shortage. (Module 13) (10 points)

Part 4

MYOB has decided to purchase an apiary to combat the wax shortage. They are considering two apiaries: The Debit Apiary and the Credit Apiary. Both apiaries are the same size and will allow MYOB to meet the full market demand noted in Part 3. Beatriz Hives is using money from her investment account to purchase the apiary and would like to receive at least a 5% return (hurdle rate). She expects to operate either apiary for ten years to generate income from operations.

The Debit Apiary costs $350,000 but does not include honey rights. MYOB expects it will cost $2,000 per month to operate and maintain the apiary.

The Credit Apiary costs $500,000 and includes honey rights. MYOB expects it will cost $2,500 per month to operate and maintain the apiary, including managing honey sales. They believe they will increase cash flow by $1,800 per month from honey sales.

4.1 Calculate the Incremental Monthly Cash Flow for MYOB under each of these two investment options. 

Here are some questions to consider when calculating Increment Monthly Cash Flow:

• For the products sold in Part 3, how much monthly cash flow increased because MYOB is no longer purchasing beeswax?

• How many more products can MYOB sell now that beeswax is not a resource constraint? How much additional cash flow will that provide? (remember that you’ll need to adjust the contribution margin now that MYOB is not buying beeswax).

• Are there any other new sources of cash flow related to the investment?

• Are there are new costs related to the investment?

• 4.2 Convert the monthly cash flow from Part 4.1 into annual cash flow. Analyze the two investment options by calculating the PAYBACK PERIOD in years and the NET PRESENT VALUE of the investment.

  Final Report

  Revise your work as needed by checking the posted answer keys. Compile your findings into a report for your client, Mind Your Own Beeswax. Include in the report your recommendations on the following:

  1. How many units of each product must MYOB sell in order to earn a weekly Target Income (profit) of $3,093 (part 2.4)

  2. How many units of each product should MYOB make to maximize profit, assuming they are only able to buy 100 pounds of beeswax per month (part 3)

  3. Which of the two investment options do you recommend (part 4.2) and why?

• Include an appendix at the end of your report that includes all of your calculations.

Answer rating: 100% (QA)

PART 1 MYOBs Cost Nature of cost beeswax Variable ... View the full answer