Cat & Joes Pig Rig saw immediate success. In the early months, the business outperformed its revenue and profit projections. But Cat and Joe did not wish to rest on their laurels. They knew that they were enjoying early success not only because they offered a good product but also because the food truck was a novelty in Kamloops. They were pleased to have a first-mover advantage, but they knew it would not last forever. They needed to continue to develop a loyal customer base and were also working hard to expand the event and private catering side of their business.

The food trucks signature dish was its Ripped Pig pulled pork sandwich.4 The sandwich came in a combo with coleslaw, baked beans, and French fries and was priced at $12. The company had variable costs, which included the cost of the food, clamshell packaging, and variable overhead. Variable costs were 40% of the companys revenues. There was no labor cost as neither Joe nor Cat drew a wage or salary. Fixed costs included items such as gas for the generator, maintenance, business licenses, and truck depreciation. These costs totaled $10,000 per year. The operational year for the food druck was 180 days. Corporate income tax rates for small businesses in British Columbia were approximately 20% around that time. The pork needed to be put in the smoker at least 12 hours in advance of service, which created two challenges for Joe. First, it meant that he worked virtually 24 hours a day. Operating the truck meant setting up, serving, and cleaning up from 10 a.m. to 7 p.m. But when service was over, Joes day was not done. He needed to smoke the pork overnightwhich involved putting the pork in the smoker late in the evening (with just the right blend of wood chips), and waking up to tend to the meat in two-hour intervals throughout the night, spraying the meat to ensure it would have the right consistency and tender quality when it was served the next day. Although it was exhausting work, Joe was willing; he had a great work ethic, he was his own boss, and smoking meat was one of his passions.

On a typical day, Cat and Joe served between 75 and 125 patrons, with an average of 100. The amount varied based on the weather, the day of the week, and other factors such as nearby local events. Joe also had a formula for when the truck was invited to special events: He expected 35% of attendees would purchase food, not necessarily from him, but from one of the food vendors at the event. He would use this ratio to estimate the number of potential customers. He would then divide his estimate for potential customers by the number of vendors serving the event. If he was the only vendor, he would get all of the potential customers, if there were two vendors, he expected to get 50% of the food-buying customers. This number would serve as his guideline for how many pounds of meat he would need to smoke the night before. It had proven to be accurate in the past, and Joe intended to use this formula for any special events going in the future.

THE BULLARAMA DILEMMA

The invitation was succinct. It explained that Cat & Joes Pig Rig would be welcomed at Bullarama in Barriere, British Columbia. Bullarama was a charity rodeo event, where novice, junior, senior, and professional riders would compete. A handicapping system would be used to ensure all riders could expect competitive scores. According to event organizers, 700 tickets had been sold. When Joe and Cat brought their truck to special events they did not serve their usual pulled pork sandwich combo. They served only the sandwich, with no beans, coleslaw, or French fries. This enabled them to serve customers much more quickly and to reduce their price to $9 per serving. It also let them replace their expensive clamshell packaging with a much cheaper foil wrapping. With fewer side dishes and less expensive packaging, variable costs would be reduced by $1.90 per customer when compared to their normal menu. There were several other cost considerations related to the Bullarama event. First, the event organizers suggested a donation of $100.6 Second, their food truck ran on propane, and the 140 kilometer round trip to Barriere would add $100 to their typical fuel costs. Finally, in order to maximize space for the mobile cooking equipment, the truck only had one seat (for the driver), so if Joe drove the food truck, Cat would need to drive her car separately, with an expected extra gas cost of $30. All of these costs would be avoided if they stayed home in Kamloops. The couple had one other concern. The organizers promised that Cat & Joes Pig Rig would be the only food option available to event attendees, but the entrepreneurs had heard such promises before and found they were not always reliable. While they trusted the event organizers, they were worried about the potential for other onsite competitors. They planned to do calculations for multiple scenarios. The couple reminded themselves that business was good in Kamloops, but this represented an opportunity to expose their product to a new, potentially lucrative market. As Joe opened the calculator app on his smartphone, he reminded himself that numbers were important, but this decision would not be based on numbers alone. There were a lot of other factors to consider.

Prepare a contribution-format income statement for the Bullarama event based on an optimistic projection (no onsite competitors), a conservative projection (one onsite competitor), and a pessimistic projection (two onsite competitors).