The Great Tamale Alternative 1- Food Truck After experiencing such great success

Question

The Great Tamale Alternative 1- Food Truck After experiencing such great success with their food cart, Nathan and Cody are considering purchasing a food truck to serve other communities. This would allow the Great Tamale, GT, to reach even more customers in different geographic locations. There would be an increase in the selling price per plate. There will also be an increase in the fixed costs of $30,000 for advertising to inform the public of this change (this amount is already included below under Food Truck data). The financial information is presented below for this alternative as well as the original data. Assume 31,125 plates are sold for the food cart and 45,625 plates are sold for the food truck.

Compute the Profit Margin and Return on Assets for each scenario assuming average total assets of $500,000. Industry averages are 20% and 10% respectively.

Show work please. thank you

food cart food truck Sales $ 217,875.00 $365,000.00 Variable cost $46,687.50 $103,437.50 Contribution marigin 171,187.50 261,562.50 fixed cost 90,000.00 147,500.00 income before taxes 81,187.50 114,062.50 Income taxes (32% rate) 25,980.00 36,500.00 net income 55,207.50 77,562.50

Explanation / Answer

Solution:

Profit margin = Net Income / Sales

Food cart = $55,207.50 / $217,875 = 25.34%

Food Truck = $77562.50 / $365,000 = 21.25%

Return on Assets = Net Income / Average total assets

Food cart = $55,207.50 / $500,000 = 11.04%

Food truck = $77562.50 / $500,000 = 15.51%

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