HomeChef sources its ingredients from local producers and thus charges a premium: managerial accounting Home Work, SUSS, Singapore

The Company – HomeChef Pte Ltd (HomeChef)

HomeChef was founded by David Chua five years ago, selling ready-to-cook meal kits. The company noticed a need for ready-to-cook food options as most meal kits in the market are either laden with preservatives or require heavy food preparation. HomeChef addresses these issues by selling vacuum-sealed set meals where the consumers can either sous-vide, bake or microwave the meal kits according to the instructions on each label. Given the patented technology, there is no other company that can produce the same meal kit at the same quality.

Since their launch, the products have been well received by stay-at-home mothers. Customers appreciate both (1) the time saved from meal preparation and cooking, and (2) long shelf-life products that have no preservatives. Recently, there has been an uptick in demand from working adults who enjoy the convenience of preparing healthy food using a microwave.

David is a friend of yours and was delighted when he heard you are taking Management Accounting this semester. He approached you to gather a group of friends in your class to advise on HomeChef’s problems (you graciously accept his request). You proceed to ask for some essential information on the company – this can be found in Annex 1

With the information on hand, your team decided it would be best to evaluate the company’s financials before coming up with suggestions.

Questions

Question 1

HomeChef sources its ingredients from local producers and thus charges a premium for delivering high-quality ingredients. With the ongoing inflation, the prices of such raw materials, especially chicken, are steadily increasing on the company’s end. HomeChef is evaluating whether they should pass the cost to consumers by increasing the selling price or cut costs by sourcing cheaper alternatives from other countries.

1. Using the contribution margin format, prepare a budgeted income statement for

• Base case;
• Alternative #1: Increase in selling price; and
• Alternative #2: Sourcing from cheaper alternatives.

2. Select the better alternative. Suggest two other factors that were not identified by the consultancy firm in Annex 1 (Part B) that may have potential financial impact on HomeChef.

Question 2

Using the base case scenario, compute the sales of the two products for the company to breakeven. Round your answers to the nearest dollar.

Question 3

Using the data in Annex 1 (Part C), compute the total indirect costs for the Processing and Shipping departments by using the step-down method to allocate the costs of the support departments. Costs from the Facilities Maintenance department are to be allocated first. Explain your choice of cost allocation base.

Question 4

As David was sharing more about HomeChef, David mentioned Emily, a successful micro influencer whom HomeChef partners. Emily is a young mother who loves and believes in the quality of HomeChef’s products and many of her followers purchase HomeChef’s products through her personalized link.

The sales to her followers constitute individual purchase orders. David believes that Emily is the most important customer as she gives HomeChef the most sales.

Using activity-based costing, you told David that you wish to validate his claim that Emily is indeed HomeChef’s most important customer against another big customer, Tat Hong.

Tat Hong owns a couple of minimarts, primarily situated in new BTO[1] estates. To cater to the growing population of young families in these estates, he stocks HomeChef’s products in his minimarts. HomeChef’s meal kits are very popular amongst the communities Tat Hong serves.

[1] Build to Order (BTO) is a Singaporean housing initiative by the Housing and Development Board (HDB). Applicants express interest in new HDB apartments at specific locations. Construction proceeds only if a minimum number of applicants is met; otherwise, the project is canceled.