Making Business Decisions II You have decided to try a new product called coffee-on-the-go. Each morning and afternoon, a Broadway Cafe truck will drive to the office park on the end-of-town offering coffee and other items for sale. This means that the truck must drive across-town four times each day. The cost of transportation to and from the sales area, plus the power demands of the trucks coffee brewing equipment, is a significant portion of variable costs. You are wondering if it would be worth trying to reduce the amount of driving and, therefore, the variable costs, if you leased a small cafe closer to the office park.

You currently have rent of $5,000 per month. The lease of a new cafe, closer to the office park, would cost an additional $2,500 per month. This would increase the fixed costs to $7,500 per month. Although the lease of new cafe would increase the fixed costs, a careful estimate of the potential savings in gasoline and vehicle maintenance indicates that The Broadway Cafe could reduce the variable costs from $0.50 per unit to $0.30 per unit. Total sales are unlikely to increase as a result of the move, but the savings in variable costs should increase the annual profit.

PROJECT FOCUS:

Consider the information provided to you in SCM_MBD2.xls. Especially look at the change in the variability of the profit from month-to-month. From November through January, when it is much more difficult to lure office workers out into the cold to purchase coffee, The Broadway Cafe barely breaks even. In fact, in December, the business lost money.

• Develop the cost analysis on the existing lease information using the monthly sales figures provided to you in the file SCM_MBDII.xls.
• Develop the cost analysis from the new lease information provided above.
• Calculate the variability that is reflected in the month-to-month standard deviation of earnings for the current cost structure and the projected cost structure.
• Do not consider any association with downsizing such as overheadsimply focus on the information provided to you.
• You will need to calculate the EBIT (earnings before interest and taxes).

Broadway Caf
Units sold per month:	20,000	Unit variable costs:	$0.30
Average unit sales price:	$2.20	Projected fixed costs:	$7,500
Sales month	Units	Sales	Fixed Costs	Variable Costs	EBIT
January	6,582
February	11,121
March	14,178
April	13,692
May	11,597
June	9,599
July	9,913
August	10,926
September	14,349
October	12,965
November	6,972
December	2,455
				Sum: