Dani wants to know if the bakery makes more money from walk-in sales, or sales to other businesses. Dani and her accountant break down her income statements to separate the variable costs from fixed costs and show the difference in costs and earnings.
They then look at the contribution margin — which shows if something earns enough to cover its variable costs and help pay fixed costs — for both income streams.
Selling to other businesses has a better contribution margin, so Dani decides this is where to focus her efforts. Dani will also continue to offer walk-in sales. The contribution margin is smaller for walk-in sales, but it allows her to buy ingredients in bulk to bake for her business customers.
Dani wouldn’t have thought of expanding in this way if Dani hadn’t set time aside to understand the bakery’s financial statements. Her parents had $15,000 in goodwill on the balance sheet, due to informal agreements to sell doughnuts to local cafes.
Follow Dani’s story as Dani uses forecasting to set a budget for a new commercial kitchen to handle increased demand.