Jenny runs a small bakery in a suburban area, specializing in artisanal bread and pastries. She has been in business for three years and has built a loyal customer base. Her bread is priced at $6 per loaf, and pastries are priced between $2 and $4 each. The bakery has variable costs, including the cost of ingredients, packaging, and variable overhead, which amounts to 40% of revenues. There is a part-time employee who helps with baking and customer service and is paid $12 per hour. The bakery is open six days a week, and Jenny works 10 hours a day on average.

On a typical day, the bakery serves between 60 and 100 customers, with an average of 80. Fixed costs include items such as rent, utilities, equipment maintenance, business licenses, and insurance. These costs total $20,000 per year. The operational year for the bakery is 300 days. Corporate income tax rates for small businesses are approximately 25% around that time.

Recently, Jenny received an invitation to participate in a local food festival, which attracts foodies from around the area. She would have to rent a booth for $500 for the three-day event. At the festival, she would only sell pastries, which would be priced at $3 each. With no bread to bake, she could reduce the variable costs to 20% of revenues. She would have to hire an additional employee to help with baking and serving customers, who would be paid $15 per hour. Jenny estimates that there would be around 1,000 attendees at the festival, and she would have to compete with ten other pastry vendors.

Jenny is considering whether to participate in the food festival or stay open at the bakery. She wants to maximize her profits and minimize her risks.

1. If Jenny wants to make a profit of $50,000 for the year (after tax), how many pastries must she sell each day at the bakery?
2. Prepare a contribution-format income statement for one days business at the bakery based on optimistic, realistic, and pessimistic projections for a regular, non- festival day.
3. Prepare a contribution-format income statement for the food festival based on an optimistic projection (no onsite competitors), a conservative projection (five onsite competitors), and a pessimistic projection (ten onsite competitors).
4. Would you recommend Jenny to participate in the food festival or stay open at the bakery? Why?