Kim Kane sells lunches from a pushcart in a pedestrian mall near a busy office area. Over time, Kim has established a reputation for selling quality sandwiches, soups, and salads. Kim sells each sandwich for $4, each bowl of soup for $3, and each salad for $3. Customers also can purchase a bottle of water or a can of soda from Kim for $1.

For every ten customers, three customers purchase both a soup and a sandwich; three customers purchase both a soup and a salad; two customers purchase only a sandwich; one customer purchases only a bowl of soup, and one customer purchases only a salad. Six of every ten customers also purchase a bottled water or soda with their food. Kim does not offer any price discounts for purchasing multiple items; thus, a customer who purchases both a soup and a sandwich is charged $7 (i.e., $4 for the sandwich + $3 for the soup.)

Kim estimates that her variable costs are as follows: $1.25 for each sandwich; $1.00 for each bowl of soup; and $0.75 for each salad. She buys soda and water in bulk for $0.25 a can (or bottle). Finally, Kim estimates that her fixed costs (which include the cost of her time, her pushcart license, plastic and paper products, condiments, and so on) total $4,950 per month.

Required:

a. How many customers does Kim need to serve in a month to break even? What does this mean in monthly revenue?

b. Suppose Kim decides to offer a free can of soda or bottle of water to customers who purchase a sandwich-soup-salad combo (as you know, no one currently purchases this combination). Assume that the three of every ten customers who currently purchase both a soup and a sandwich will be enticed by this offer. Also, assume that these three customers had always purchased a soda or water with their soup and sandwich.

Kim’s offer will have no affected on her other customer groups. How many customers does Kim need to serve in a month to break even? What does this translate to in monthly revenue?