Complete the questions for the enclosed case, Cat & Joe Case. Required Questions:1. List and briefly describe
Question:
Complete the questions for the enclosed case, Cat & Joe Case. Required Questions:1. List and briefly describe the advantages and disadvantages inherent to the food truck business model as compared to traditional restaurants.2a. On a typical day in Kamloops, how many “Ripped Pig” sandwiches must be sold in order to break even?2b. Comment on Cat and Joe’s breakeven point (calculated in Part a). Should this number be relevant to the entrepreneurs?2c. If Cat and Joe wish to make a $100,000 profit for the year (after tax), how many pulled pork sandwiches must the Pig Rig sell each day? Assume all days are in Kamloops at regular prices.3. Prepare a contribution-format income statement for one day’s business at the Pig Rig based on optimistic, realistic, and pessimistic projections for a regular, non-event day in Kamloops.4. 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).5. What are the nonfinancial advantages and disadvantages of attending Bullarama?6. Assume Cat and Joe were told that they should expect one onsite competitor. Would you recommend they stay in Kamloops for the day or go to Bullarama? Justify your answer with both financial and nonfinancial data.
Case Study 1 is about the Co-Owners of a BBQ truck, Cathy Obertowitch and Joe
Thompson, and their decision about attending “Bullarama” as food providers. Cat and Joe’s
truck, the Pig Rig, is located in Kamloops, British Columbia, Canada. At the time of the case
study, the Pig Rig has been in operation for several months and has been outperforming
projections in sale and customer growth.
Currently, Cat and Joe serve between 75-125 people a day, selling its signature dish the
“Ripped Pig” combo for $12 each with 40% of revenue going to variable costs and a corporate
income taxes for small businesses of 20%. Fixed costs for the pig rig includes gas, maintenance,
business licenses, and depreciation amounts to a yearly cost of $10,000. The Pig Rig operates
180 days out of the year. They use a simple trend forecasting method when attending events.
They assume 35% of all attendees will want food, and there will be equal distribution among all
vendors of that 35 %.
“Bullarama” is a charity rodeo event, with 700 people attending according to ticket sales.
Cat and Joe remove bottlenecks by only serving the sandwiches that allow for a lower cost to
customers and a shorter lead time from order to delivery. Attending the event would add an extra
$100 in fuel costs for the truck, $100 in a donation, and $30 to take another vehicle to their fix
costs. Cat and Joe wonder if they should stay in Kamloops, or attend the event.
Advantages and disadvantages of food truck business compared to traditional restaurants.
Owning a food truck comes with many advantages over a traditional restaurant. Food
trucks have a lower investment and operational cost due to buying or renting a truck over real
estate. The equipment is smaller, and cheaper to operate requiring less startup capital. Labor
costs are lower when operating a food truck over a conventional store due to a smaller workforce
needed, and most times owners are the workforce and do not draw a paycheck. Food trucks have
the luxury of having the flexibility of moving from location to location where their customers are
and attending events to create a revenue stream not available to standing stores. By following the
customer they do not have the spend money on marketing.
The advantages of owning a food truck can quickly turn into a disadvantage if not
properly managed. With smaller and cheaper equipment there is also limited cooking space
causing a bottleneck for orders. There is also limited cold storage causing limited variety and
amount of food carried. The mobility and flexibility advantage become canceled because of the
potential for the truck to break down causing a loss of revenue until the truck is fixed. Sales are
weather dependent, which causes a shorter selling season. The savings on marketing could be
wasted if current customers do not know the current location of the truck, as well as increased
competition from other trucks not respecting the sales boundary.
Cost-Volume-Profit Analysis baseline of Kamloops operations
The break-even point on a typical day in Kamloops can be found using the information stated
below.
○ Total Fixed cost per year = $10,000
○ Operational time - 180 days
○ Price = $12
○ Variable costs= 40% of revenue
The fixed costs on a typical day are found by taking the total fixed cost per year and dividing it
over the total yearly operational time of 180 days. This dollar amount per day is then divided by
revenue generated per sale which is the unit price subtracted by variable cost.
○ Break even for a typical day = $10,000/180 days = $55.60/day
○ $55.60 / (Price per unit $12- Variable cost per unit $4.80)= 7.716 units/day
The break-even for a typical day using the level plan that the ripped pig needs to sell is 7.7,
rounded to 8 “ripped pig” sandwiches. The break-even number is very important and relevant to
entrepreneurs because the bottom line is it helps them know the minimum sales volume to avoid
a loss. It is also important when planning a target profit level when comparing situations. Whe
setting profit levels, knowing the break-even point allows an entrepreneur to set the optimum
price and manage and schedule inventory requirements. For example, if the Pig Rig wanted to
make $100,000 profit for the year (after tax) they would need to know how many pulled pork
sandwiches they would need to sell each day.
○ Fixed cost per day = $55.6
○ Corporate Income Tax = 20%
○ Contribution Margin (CM) per unit = 12 - (12 ⋅ 40%)= $7.20 / unit
○ Desired Yearly Income (Before Tax)= $100,000 / (1-20%) = $125,000
○ Desired Monthly Income (Before Tax)= $125,000 / 180 days = $694.44/day
○ Daily Sale of Units required = (55.6 + 694.44) / 7.20 = 104.17 units/ day
By using the same calculations in the break even model with the addition of finding the pre tax
income amount it was found the Pig Rig needed to sell 105 “ripped pig” sandwiches a day.
Contribution-format income statements
Contribution income statement for a regular day in Kamloops, Table 1, compares the income
and revenue from optimistic (125 customers), realistic (100 customers), and pessimistic( 75
customers) projections. The sales per day are found by multiplying the number of customers
projected by the costs per unit ($12) as a starting point. Using the data and solutions found
earlier, the total profit per day for each projection is found.
Quality Management for Organizational Excellence Introduction to Total Quality
ISBN: 978-0133791853
8th edition
Authors: David L. Goetsch, Stanley Davis