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3. A third friend approaches you for advice - you should start a consulting business... The third friend operates a food truck that serves breakfast
3. A third friend approaches you for advice - you should start a consulting business... The third friend operates a food truck that serves breakfast burritos. Currently the friend has total fixed costs of $4,000 per month. The variable cost to make a burrito (labor, ingredients, utilities, etc.) is $4.60 and the burritos are sold for $8.00 each. Your friend is considering joining a food purchasing co-op. The membership fee is $400 per month. Your friend estimates that with the membership they could reduce the variable cost to make a burrito by $0.25. They are excited by the opportunity to reduce costs, as they have plans to expand further, but also very worried about fixed costs as they rely on their monthly income from the food truck to pay their mortgage, car payment, etc. Required: Write your friend a short email. The purpose of this email is to educate your friend about the concept of cost structure (fixed costs vs variable costs) and its effects on a company's operations and risk/volatility. In writing your email, you may address things such as: a) Point of indifference b) Degree of operating leverage (DOL) c) Changes in break-even point d) Changes in DOL e) Changes in net income from future changes in sales (increases or decreases)
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