Reference no: EM131051307

Case: Vincent's Cappuccino Express

Three years ago, Vincent Chow completed his degree in business. The local economy was in a depressed state at the time, and Vincent managed to get an offer of only $31,000 per year. In addition to its relatively low pay, the job had limited advancement potential.

Since Vincent was an enterprising and ambitious young man, he declined this offer and started a business of his own. He was convinced that, because of changing lifestyles, a drive-through coffee establishment would be profitable. He was able to obtain financial backing from his parents to open such an establishment close to the industrial park area in town. Vincent named his business The Cappuccino Express and decided to sell only two types of coffee: cappuccino and decaffeinated.

As Vincent had expected, The Cappuccino Express was very well received. Within three years, he had added another site west of town. He left the day-to-day management of each site to a manager and focused his own attention on overseeing the entire enterprise. He hired an assistant to do the record-keeping and selected other chores.

DISCUSSION QUESTIONS:

1. Sketch the organizational chart of The Cappuccino Express. (Your chart should include Vincent, his assistant, the two site managers, and hourly employees at each site.)

2. What critical factors can be expected to have a major impact on the success of The Cappuccino Express? Briefly explain how each factor would affect its success.

3. What major tasks does Vincent have to undertake while managing The Cappuccino Express?

4. Keeping in mind the major decisions required to run The Cappuccino Express, what are ten major operating costs that must be incurred?

5. Why would running one's own business be different from working for someone else? What additional type of cost does this suggest that Vincent should consider?

6. Vincent would like to monitor the performance of each site manager. What four or five performance measures should be used to monitor and reward their performance? Briefly explain why each measure is relevant and how you would propose to measure it.

7. If you must select only one of the above performance measures as the basis for rewarding site manager performance, which one would you select. Briefly explain why you selected it.

8. Assume that last year the two sites had yielded total revenues of $200,000, total costs of $150,000, and a profit of $50,000 (a profit margin percentage of 25%). Also assume that Vincent had judged this profit level to be satisfactory.

(a) For the coming year, Vincent expects that, due to factors like increased name recognition and demographic changes, the total revenues of this site will increase by 25% (to $250,000). What amount of profit should he expect from the site? Briefly explain your rationale for this estimate. (NOTE: You do not have enough information to calculate this amount exactly--you need only to provide a reasonable estimate.)

(b) Instead, suppose that sales for the two sites will not change (i.e., sales will again total $200,000 and that a third site will be added. If this third site has revenues that total $80,000, what amount of profit should Vincent expect for all three sites combined? Briefly explain your rationale for this estimate. (NOTE: You do not have enough information to calculate this amount exactly--you need only to provide a reasonable estimate.)