Mitchs Baking Mitch has been working as a labourer for the past four years. As a father of an energetic fiveyear old, the parttime job has worked well for him. With Mick, his son, heading off to school next month (September 2022), Mitch is considering new career options, perhaps starting in January. His employer has been getting busier and has offered Mitch fulltime employment if he ever desires it. The fulltime offer would transition Mitch from an hourly rate of $21 per hour (he typically works 20 hours a week) to a salary of $44,000 per year (he is expected to work 35 hours a week). In recent years, as Mick has grown up, Mitch and his wife, Evelyn, have earned just enough to make ends meet. However, they are now looking to grow their savings while continuing to pay off their three bedroom townhouse. As Evelyns income as a lawyer is expected to remain roughly constant over the near term, Mitch is pondering how he can boost his earnings. Its not critical to amass more cash immediately as the couple has secured a $20,000 line of credit at prime plus 1% (there is no current balance and the rate is expected to increase 1% over the next year). Mitch has a natural talent for glutenfree baking. Adults and children alike have complimented his glutenfree bread, cookies, muffins, etc. A fair number of them have told him that he could succeed if he were to start his own business. With some early planning/research, Mitch has determined that the following sales numbers are reasonable for his first month of business, possibly January 2023: Item Sales volume Sale price Cookies batch of 12 100 $8 Cupcakes batch of 6 100 $14 Muffins batch of 4 80 $10 Other N/A $500 (monthly total) Mitch has projected monthly fixed costs of $700 when he starts his business (these are currently incurred as living expenses though at lower rates such as depreciation of the baking oven). There will also be approximate variable expenses equal to 38% of the sale price for each baked good (including other). Mitch has unused (and unfinished) space in their basement which can be used to build a bigger kitchen with storage. It would cost an estimated $24,000 to finish the basement, as well as an additional $7,000 in industrialgrade baking appliances (can only be installed in the basement due to input constraints). In theory, the basement, once finished, can be rented out at a rate of $800 per month, but, since purchasing the house seven years ago, Mitch and Evelyn have opted not to finish the space for rental purposes. With industrial appliances, Mitch can bake, in addition to $1,000 worth of other goods, 500 items in total of cookies, cupcakes, and muffins (e.g. 200 dozens of cookies, 150 halfdozens of cupcakes, and 150 quartets of muffins) while working on a parttime work basis. Without industrial appliances, this volume could only be managed on a fulltime work basis. Mitch is wondering if the basement investment is worthwhile now or in the future. He wants a detailed analysis with all possible elements taken into consideration. Mitch is wondering how he may depreciate appliances. As his business is expected to grow, so will the use of appliances. Mitch is wondering about how depreciation works, the most appropriate depreciation method for his needs, and how a sample monthly journal entry may look like. Currently, Mitch is projecting a growth rate of 4% per month compounding monthly for the first 24 months. This will be followed by annual growth of 7% per year for the next three years (at which point the business will be considered mature with no further growth). Mitch is wondering if it is worthwhile to put some effort into marketing. By spending $200 a month on Google Ads, he believes the initial two year monthly growth rate can be boosted to 5.25% (the growth rates after two years would remain unchanged). By spending an extra $600 monthly on social media advertising, Mitch can add an extra 0.5% to both the twoyear growth rate as well as the three years after it. However, he is reluctant to use social media as he feels there may be some ethics issues. Mitch is looking for advice on running an ethical business and wants a recommendation on the best marketing strategy for him. Due to Evelyns work, Mitch has some awareness of the importance of keeping accurate records and having a reliable accounting system. He wants you to give her some more advice on best accounting practices. Due to his busy schedule and slight disdain for detailoriented work, Mitch is strongly considering asking his friend Reese to be a business partner with him. He is thinking of asking them to pay him $8,000 for a 30% share of the business. Additionally, they would be responsible for completing the bookkeeping and buying baking ingredients on a weekly basis. Without Reese, these tasks would take 20% of Mitchs entrepreneurial work time. Mitch wants a pros and cons analysis, as well as a recommendation, of taking on Reese as a business partner (either now or in future). Mitch wants a detailed analysis of his business plan. He wants advice on ethics, business strategies, and other relevant matters. Mitch welcomes any recommendations, as well as any questions to him which will help you better analyze his options. Please prepare a business memo, in good form, including appropriate ciations, to Mitch, addressing all issues raised in this case. make a business memo