BUSINESS STUDIES 7115 · STRUCTURED PRACTICE
Marcus founded Apex Artisan Bakeries (AAB) four years ago as a sole trader. The bakery handcrafts organic sourdough loaves and specialty rye breads for premium delicatessens and local restaurants.
AAB sells each sourdough loaf for $6.50. The cost of bought-in raw ingredients (organic flours, wild yeast cultures, seeds, and eco-packaging) is $2.10 per loaf. The bakery employs four skilled bakers and produces 12,000 loaves per month.
Marcus is currently working 70 hours per week and is struggling to fulfill large new supply contracts from two regional supermarket chains. He is evaluating two growth strategies: • Option 1 (Organic Internal Growth & Incorporation): Convert AAB into a Private Limited Company (Ltd), sell a 25% equity stake to a private angel investor to raise $90,000, and purchase a computerised deck oven to triple baking capacity. • Option 2 (External Franchising): Franchise the "Apex Artisan" brand to three independent bakery operators in nearby cities, receiving an upfront fee of $15,000 per franchisee plus a 5% monthly royalty on their gross revenues.
Define the term opportunity cost.
Marcus wants to analyse the financial value creation of Apex Artisan Bakeries:
Calculate the added value created per sourdough loaf. Show your working using the FIND protocol.
Identify two methods (other than increasing the retail selling price) that Marcus could use to increase the bakery's added value.
Explain one advantage and one disadvantage to Marcus of converting Apex Artisan Bakeries from a sole trader into a private limited company (Ltd).
Justify whether Marcus should expand Apex Artisan Bakeries through internal organic growth (Option 1: incorporating as an Ltd and investing in automated equipment) or through external franchising (Option 2: licensing the brand to franchisees). Use the BLADE framework to structure your evaluation.
Total: 16 marks