Luganos Pizza Parlor is considering the purchase of a large oven and related equipment for mixing and baking crazy bread. The oven and equipment would cost $308,800 delivered and installed. It would be usable for about 15 years, after which it would have a 10% scrap value. The following additional information is available:

a.	Mr. Lugano estimates that purchase of the oven and equipment would allow the pizza parlor to bake and sell 85,000 loaves of crazy bread each year. The bread sells for $1.60 per loaf.
b.	The cost of the ingredients in a loaf of bread is 40% of the selling price. Mr. Lugano estimates that other costs each year associated with the bread would be as follows: salaries, $31,000; utilities, $9,000; and insurance, $3,000.
c.	The pizza parlor uses straight-line depreciation on all assets, deducting salvage value from original cost.
	(Ignore income taxes.)

Required:
1.	Prepare a contribution format income statement showing the net operating income each year from production and sale of the crazy bread. (Input all amounts as positive values. Omit the "$" sign in your response.)

(Click to select)UtilitiesDepreciationInsuranceCost of ingredientsSales revenueSalaries		$
Variable expenses:
(Click to select)DeductAdd: (Click to select)Sales revenueInsuranceSalariesCost of ingredientsDepreciationUtilities
(Click to select)DepreciationContribution marginSalariesInsuranceUtilitiesNet operating income (loss)
Selling and administrative expenses:
(Click to select)Sales revenueUtilitiesSalariesInsuranceDepreciationCost of ingredients	$
(Click to select)Cost of ingredientsInsuranceDepreciationSalariesSales revenueUtilities
(Click to select)SalariesUtilitiesCost of ingredientsSales revenueDepreciationInsurance
(Click to select)SalariesDepreciationCost of ingredientsUtilitiesInsuranceSales revenue
(Click to select)Net operating lossContribution marginNet operating incomeGross margin		$

2a.	Compute the simple rate of return for the new oven and equipment. (Round your answer to 1 decimal place. Omit the "%" sign in your response.)

Simple rate of return

%

2b.

If Mr. Lugano accepts any project with a simple rate of return greater than 5%, will he acquire the franchise?

	Yes
	No

3a.	Compute the payback period on the oven and equipment.

Payback period

years

3b.

If Mr. Lugano accepts any investment with a payback period of less than nine years, will he acquire the franchise?

	No
	Yes