CVP Analysis Practice Problem 4 The Barco Company provides the followmg cost information: Sale price per cup $.25 100% Variable expense per cup: Commission to State UniverSity $.06 Soft drink in each cup .05 Cost ofeach paper cup g j w Contribution margin per cup .12 48% Fixed expenses (per game): Lease cost of booth $200 Wages of 15 hawkers at $10 each 150 Liability insurance Total m Should The Barco Company enter into a lease agreement With State UniverSity tor a booth in the new stadium? In coming to a decision. the company Will have to resolve questions such as the following: a. What would be the breakveven point for the booth in number of cups sold, and in dollars of sales? b. If The Barco Company needs a minimum $600 in profits per game. how many cups Will have to be sold? What will the dollar sales be? c. lfthe booth is very successful and State Univer5ity decides to double the lease cost. what will be the effect on the break-even point? How many cups will have to be sold to yield the minimum required $600 in prots? d. Assuming the original data, it the cost of each paper cup doubles what Will be the effect on the break-even point in number of cups sold? How many cups will have to be sold to yield the minimum required $600 in profits? 776 e. Assume that the booth is rented, and that 10,000 drinks are being sold each game. The Barco Company managers estimate that hiring five additional hawkers will result in an additional 1.000 drinks being sold each game. Should the five additional hawkers be hired? f. Assume again that the booth is rented, and that 10.000 drinks are being sold each game. The Barco Company is contemplating increasing the sale price of each cup of drink from $.25 to $.30. The company estimates, however, that if the price is increased the number of drinks sold may decrease by as much as 30 percent. Should the price increase be made? It' the price increase is made, by how much can volume decrease and the company still earn at least the prots that were being earned before? 9. Assume again that the booth is rented. and that 10.000 drinks are being sold each game. The Barco Company is contemplating placing the hawkers on a commission basis. rather than a flat $10pergame salary. The commission would be $.02 per cup sold. The company estimates that if the hawkers are placed on a commission basis they Will sell 15 percent more drinks each game. Should the hawkers be paid a commission rather than a \"a\" sa'ary? _