Reference no: EM132391249
Assignment
Case Study:
You work for an insurance organization. Your company recognizes that risk management services are a value-add to the insurance products that it sells. Given that you are taking the Risk Management Principles and Practices course at the Insurance Institute of Canada, your boss has asked you to assist one of the company's newest clients. Emma Decker is the owner of a successful baked goods enterprise, The Cupcake Company. Your role will be to advise Emma throughout the course.
The Cupcake Company has two locations in a large city. The first is a small store located in the financial district. The popularity of her cupcakes allowed her to expand quickly to a second location in an upscale shopping area. Both stores are on the ground level of mixed-purpose buildings, with entries and windows to the street. The stores consist of a front retail area where customers can purchase cupcakes and/or place larger orders.
The baking and decorating are done in the kitchen area at the back of each store. The stores are open seven days a week: Monday to Friday 8:00 am to 5:30 pm, and 9:00 am to 4:00 pm on the weekends. As the name suggests, the company's product is cupcakes: there are 10 basic flavours offered daily (including one vegan and one gluten-free option), five specialty/seasonal cupcakes changed weekly, and one flavour of the day. The majority of The Cupcake Company's food supplies are purchased in bulk from a local baking ingredients distributor.
Specialty ingredients are purchased from local markets and grocery stores. The selling price of each cupcake is $3.99. Clients can make purchases in-person at the stores, or by electronic order on the company's website or mobile app. Additionally, bulk orders are often made by individual and commercial clients. The store offers a delivery service for this type of order for an additional fee. Marketing is done through the company's website, social media accounts, and occasional flyers delivered to nearby buildings.
Emma feels strongly that as her company grows, she will benefit from keeping risk management strategies at the forefront of her business planning. With the continued success of The Cupcake Company, she would like to ensure the quality of her product, realize cost savings, and plan for future growth. To do so, Emma is considering the purchase of a larger oven and having the bakers work from a single kitchen. The cupcakes would then be distributed to the stores. She would require financing for the oven purchase, but would be able to bake more cupcakes. Additionally, she could renovate the other kitchen into a space for holding baking workshops and/or small parties. Emma would like your help to identify, analyze, and treat the risks associated with this venture.
Lesson 7 After doing some research, you found a baking company similar to Emma's in another city: Cupcakes R Us. Like Emma's company, Cupcakes R Us has two store locations. However, they also have a commercial kitchen. For the last five years, Cupcakes R Us has been collecting data on their sales. Supportive of a fellow cross-country business entrepreneur, Cupcakes R Us' manager agreed to share its sales data with you. Analyzing the data, you were able to determine that:
The mean average revenue for Cupcakes R Us is $250,000.
In a normal distribution, there is a standard deviation of $10,000. Assume that The Cupcake Company can use Cupcakes R Us' past data for their own analysis.
a) Scenario #1: In order to invest in the new kitchen, Emma would like to earn at least $260,000 in revenue from her bakeries. How confident can Emma be that this will occur? Express the confidence as a percentage, and explain how you reached this number.
b) Scenario #2: As a separate scenario, assume that operating expenses for The Cupcake Company are fixed at $225,000 compared to the current revenue being used for this analysis. Can Emma be at least 50% confident that she will achieve at least $25,000 in net profit? Explain why or why not.
Additional data from Cupcakes R Us shows that as the company's revenue goes up, so do employee injuries. You want to project the number of employee injuries at the bakery for the next year, based on company revenue (in $10,000 increments). You construct a linear regression line and calculate the values for m and b.
The value for m, 0.071, indicates that every $10,000 of revenue will result in 0.071 additional injuries. The value for b, 0.2, indicates that even if The Cupcake Company had no revenue, 0.2 injuries would occur on an annual basis.
a) What are the independent and dependent variables in this scenario?
b) What is the equation to calculate the number of injuries The Cupcake Company should expect?
c) The figures for m and b also demonstrate that ONE (1) injury can be expected with each additional $140,845 of revenue. How was this figure calculated?
d) The Cupcake Company expects $260,000 in revenue next year. Calculate the expected number of injuries for the year, showing your work.