Shawarma Inc., is a new company currently studying various alternatives in regard to opening Shawarma outlets. The only available data was formulated by a hired consultant who, unfortunately, died quite suddenly. A summary of the information that the consultant developed is as follows:
Average Selling Price per Shawarma $7.50
|
Normal Monthly Costs
|
Fixed
|
Variable
|
|
Cost of Shawarmas Sold
|
$0
|
$5,500
|
|
Manager's Salary
|
2,000
|
0
|
|
Wages
|
2,000
|
0
|
|
Rent
|
1,500
|
500
|
|
Utilities
|
500
|
200
|
|
Insurance and Commissions
|
1,000
|
0
|
|
Total Costs
|
$7,000
|
$6,200
|
*Note: Costs are based on budgeted sales of 2,000 shawarma's per month.
The above information represents estimates for the operations of a Shawarma outlet. Joe's is interested in opening the outlets as soon as possible and has asked you to comment on the various scenarios as reflected in the questions a thru to c below.
Required:
Calculate the breakeven point for a shawarma outlet in terms of both sales dollars and number of shawarmas sold each month.
The company is considering offering a promotional selling price of $5.00 per shawarma during the first month of operations. How many extra shawarmas will have to be sold by a shawarma outlet at the promotional price compared to the normal average selling price in order to earn operating income of $2,500 during the first month?
As an incentive program for the outlet manager, Joe S. Shawarma is considering implementing an alternative compensation method. Instead of paying the manager a fixed salary of $2,000 per month, the company is considering an incentive plan of $1,000 per month plus 8% of monthly revenue Using this alternative method and the normal average selling price per shawarma, calculate how many shawarmas will have to be sold to achieve an operating income of $2,000 per month.