Simran Tea Sanctuary (STS) is a local caf chain in Vancouver, British Columbia, founded by Victor and Lucie Stone. STS's reputation was built around the cafe business; however, STS also owns a small manufacturing plant that produces sustainablysourced bottled teas. The couple wanted to provide the community with organic teas while acting responsibly toward the environment. The Stones have just retired, passing the business on to their daughter, Aurora, who shares a similar commitment to the environment and her community. It is May 2020 and you, CPA, work as an independent consultant. You have been approached by Aurora, who would like your advice on some of her recent initiatives and ideas. In 2018, STS started to capitalize on the growing demand for Kombuchaa fermented tea drink that's supposed to offer several health benetsby producing and selling its own fresh, bottled Kombucha. This year, Aurora started offering Kombucha-making classes to STS's customers. Based on the response from customers, Aurora thinks the Kombucha classes have been a massive success but she would like to know what class size she needs to break even, and to earn a target pretax profit of $200 per class. Aurora also wants to know what price she needs to charge in order to earn her target profit and would appreciate a discussion of any qualitative impacts of setting a target profit (Appendix I). Aurora has noticed that the popularity of bottled Kombucha and Yerba Mate, an herbal tea, have increased dramatically over the past two years. Because of its fermentation process, Kombucha takes longer to produce and requires more space than STS's other bottled teas. Aurora has been approached by a local company, Tea4U, who offered to produce the bottled Kombucha for STS for $7.80 per bottle. Tea4U produces and supplies highquality bottled teas to STS's cafes and to other small distributors, and can produce more bottles than STS currently produces. Although the company has only been in operation for two years, Tea4U is growing rapidly and is known for its quality products. If STS outsources the Kombucha production to Tea4U, it will have to share its proprietary recipe with Tea4U. Aurora wonders if she should outsource bottled 20191010 Case Kombucha to Tea4U and use the resulting production capacity to start producing Yerba Mate tea instead (Appendix II). Aurora has recently been approached about partnering with Organic Essentials Inc. (OEI), a large company based in Vancouver that sells essential oils. She would like you to analyze this opportunity and tell her if this is a good fit for STS (Appendix III). Finally, as Aurora sees more opportunity in selling the bottled tea than in selling fresh tea in the cafes, she is considering replacing STS's existing manufacturing plant with a larger facility. She would like you to analyze this expansion opportunity, which would double the bottled tea capacity, using the discounted cash flow model (Appendix IV). 216Case APPENDIX | KOMBUCHA-MAKING CLASSES STS offers Kombucha-making classes at its manufacturing plant on weekend mornings. Each class holds 20 students, who pay $25 each, and the classes are always full. Aurora pays a local Kombucha maker $250 to teach each class. Students are provided with ingredients to make a sample of Kombucha (cost of $3 per student) and a small recipe book to take home (cost of $4 per student). Each student may also purchase one take home starter kit at a discounted price of $35, which is $5 above cost. These kits are normally sold in the cafes for $60. Aurora estimates that about 50% of students buy the kit. She wonders how the sales of starter kits is impacting her pricing strategy. SIS APPENDIX 11 KOMBUCHA OUTSOURCING AND YERBA MATE PRODUCTION Financiai detaiis of current Kombucha production Case Per bottle Selling price $8.50 Direct materials (ingredients) $1.50 Production workers (0.07 hours per bottle >