Lolpark Concessions currently sells hot dogs. During a typical month, the stand reports a profit
of $9,000 with total sales of $48,000 (30,000 hot dogs @ $1.6 per hot dog), fixed costs of
$21,000, and variable costs of $0.6 per hot dog.
For next year, the sales manager proposes to start selling nachos for $3 per unit. Nachos
will have a variable cost of $1.00 and new equipment and personnel to produce nachos will
increase monthly fixed costs by $7,000. The sales of nachos is expected to be 10,000 units per
month. Most of the nacho sales are anticipated to come from current hot dog purchasers,
therefore, monthly sales revenue of hot dogs are expected to decline to $32,000.
Required: (Ignore income tax)
a. Determine the number of hot dogs and nachos that should be sold every month to
breakeven during the first year of introducing nachos.
b. Should the company add nachos as a new line of business?