Sugar & Spice Case Study

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The added costs of the Cupcake Truck are minimal compared to the potential added reach of customers. The permit cost for a low risk food truck in Los Angeles is $342 per year. Gas in Los Angeles is currently $2.84/gallon and an average refrigerated truck gets 15mpg. This equates to $0.19 per mile and we will limit the truck to 150 miles/day. Due to the more consistent schedule and lower skill work of selling cupcakes the employees running the van should make $10/hour and you will need to hire 2. Assuming the truck operates 23 days per month this is an increase in overhead of gas of $655.50/month, the permit of $28.50 and labor of $2,300.

Alternative Options are High Risk and Capital Intensive

Opening a local storefront or expanding to new geographic areas is too big of a capital investment and increase in overhead early in a company’s life. Local storefronts require very high upfront costs including real estate acquisition, equipment purchase and installation, construction and décor. While this could be an option for the future, you must first focus on becoming profitable and create a solid base of customers before making such high investments. You must figure how to first become profitable in your current market and business before trying to expand your scope of operations to reach new geographic areas.

Focusing operations on a set of skills and strategies creates a clear vision of where the company is headed in the future. The high throughput time mixed with low margins of customized cupcakes does not foster a healthy use of resources. Adding a Cupcake Truck will create consistent daily demand where Sugar and Spice can specialize in standard cupcakes. Increasing marketing efforts will give you the drive in sales to bring your company to new heights.

Exhibit 1 – Profitability Breakdown

Sugar and Spice

Standard Cupcakes

Price = $36/donzen* for 4 dozen batch = $144.00

COGS for a 4 dozen batch = Ingredients + Variable Labor = $22.32 + $11.92 = $34.24

Ingredients = $5.58(4) = $22.32

Variable Labor = $13(55/60) = $11.92

Gross Margin = ($144.00 - $34.24)/$144 = 76.2%

Customized Cupcakes

Price = $48/donzen* for 4 dozen batch = $192.00

COGS for a 4 dozen batch = Ingredients + Variable Labor = $27.60 + $35.53 = $63.13

Ingredients = $6.90(4) = $27.60

Variable Labor = $13(164/60) = $35.53

Gross Margin = ($192.00 - $63.13)/$192.00 = 67.1%

* Assumed Priced based off in text information instead of exhibit

Work Cited

"How Does GasBuddy Work?" Los Angeles Gas Prices - Find Cheap Gas Prices in California. N.p., n.d. Web. 02 Feb. 2017.

Interface, Company. "Refrigerated Trucks and Vans." Refrigerated Trucks and Vans. N.p., n.d. Web. 02 Feb. 2017.

Los Angeles County Department Of Public Health. 2015-2016 License/Permit Fees (n.d.): n. pag. Web.

"Sugar and Spice." Kellog School of Management. N.p., n.d. Web. 2 Feb. 2017.