Question
4. Another option for BBQ GRILL is to expand to another city under its current operating model of only selling one kind of burger. In
4. Another option for BBQ GRILL is to expand to another city under its current operating model of only selling one kind of burger. In order to expand to another city, BBQ GRILL has decided that it will need to invest in an aggressive marketing campaign in the new city. The marketing campaign will cause another $425,000 in fixed marketing expenses to be incurred for the 1st quarter 2020. The company will also need to hire a new manager to run the new citys operations at a quarterly salary cost of $35,500. BBQ GRILL LTD. CVP Income Statement For the Quarter Ended March 31, 2020 City A City B Total Sales Revenue ($5.50 per burger) $5,098,500 $2,475,000 $7,573,500 Less Variable Expenses: Cost of Goods Sold $3,104,500 $1,507,500 $4,612,000 Marketing Expenses 557,000 270,000 827,000 General & Administrative Expenses 157,600 76,500 234,100 Contribution Margin $1,279,400 $621,000 $1,900,400 a. Based on this above information related to the possible expansion of the company, what is the impact to operating income as compared to the original Income Statement given on Page 1? b. What is the new breakeven in sales dollars? c. BBQ GRILL would like to ultimately have a total target profit of $1,000,000. How many burgers must it sell to meet this target profit? Note: Round burgers up to the whole burger. 5. Explain whether BBQ GRILL should expand to another city based on the calculations above. Also consider qualitative factors of expansion into a new city.
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