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Question

blackboard/execute/content/file?cmd-view&content; id 1010364 1&course; id 13139-1 414 4. In service industries, such as restaurant services, there can be reoccurring monthly costs, Rent, franchise fees, and employee salaries (to cover set hours) are examples of costs that can stay constant (fixed) each month In this context, these costs can be considered a fixed cost Costs that can change month by month, depending on the quantity of goods sold or number of services provided, can be considered a variable cost You are considering opening another franchise of "Crazy Uncle Jack's Cajun Catfish Shack in a nearbz.mall, The franchise fee would be $800 per month, and the rent you would need to pay to the mall would be $1,000 per month The od distributor will sell you hot dogs for 85 cents each and hot dog rolls for 35 cents each You will need to remain open for 300 hours per month, with a single empleyee earning $9/hour. (a) Perform a (monthly) Cost/ Revenue Profit analysis of this business gpRortunity (determine a "reasonable" selling price to use in your analysis) Include a Cost/Revenue/Profit graph in your analysis. (b) How many hot dogs would you have to sell (per month) to break-even (for that month)? How many per day? (c) A previous data analysis has shown that the number of hot dogs sold depends on the selling price ofthe hotdog (problem #3, page 15) Consider the following possible scenarios. Suppose that marketing studies show that, at your selling price, you could expect to sell: i 2,000 hot dogs per month. ii) 4,000 hot dogs per month. ii) 6,000 hot dogs per month v8,000 hot dogs per month. For each of these possible scenarios, what would be your monthly profit? What would be your decision on opening the new franchise? Graph and label these four "model points" on your Cost/Revenue Profit graph.

Explanation / Answer

Fixed Cost

Franchise fees = $800

Mall Rent = $1000

Employee Cost = $9*300 = $2700

Total fixed Cost = $4500

Variable cost

Cost of hot dog roll= 35 cents

Cost of hot dog = 85 cents

Total variable cost per hot dog = $1.1

Selling price of the hot dog be $3.1

Break even point is when cost = revenue

Let the umber of hot dog sold to achieve breakeven point be x

4500 + 1.1x = 3.1x

x = 4500/2 = 2250  

So to achieve break even he has to sell 2250 hot dogs per month

Per day we have to sell = 2250/3 = 750 hot dogs

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