Question
Old-Fashioned Flavors is a local ice cream shop. The company currently is showing an operating loss, as evidenced by the income statement below: Sales $
Old-Fashioned Flavors is a local ice cream shop. The company currently is showing an operating loss, as evidenced by the income statement below:
Sales | $ | 75,000 | |
Costs: | |||
Food supplies | 20,000 | ||
Labor | 16,000 | ||
Utilities | 4,000 | ||
Rent | 12,000 | ||
Other | 4,000 | ||
Manager's salary | 25,000 | ||
Total Costs | 81,000 | ||
Operating Profits (Losses) | $ | (6,000 | ) |
The President of the company is considering adding sandwiches to the menu. Sales will be expected to increase by $60,000. The cost of sandwich supplies would be $30,000. Labor costs would increase 40% and other costs 10%. The current manager will continue to manage the operation with an increase in his compensation of 10%.
a. Prepare a quantitative analysis of the decision to add sandwiches to the menu using the table below.
b. What qualitative considerations should the company consider in this decision?
c. What are your recommendations concerning this proposal?
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