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Shawarma Inc., is a new company currently studying various alternatives in regard to opening Shawarma outlets. The only available data was formulated by a hired
Shawarma Inc., is a new company currently studying various alternatives in regard to opening Shawarma outlets. The only available data was formulated by a hired consultant who, unfortunately, died quite suddenly. A summary of the information that the consultant developed is as follows Average Selling Price per Shawarma $7.50 Normal Monthly Costs FixedVariable Cost of Shawarmas Sold $0 $5,500 Manager's Salary 2,000 Wages 2,000 Rent 1,500 500 200 500 Insurance and 1,000 Commissions Total Costs $7,000 $6,200 Note: Costs are based on budgeted sales of 2,000 shawarma's per month. The above information represents estimates for the operations of a Shawarma outlet. Joe's is interested in opening the outlets as soon as possible and has asked you to comment on the various scenarios as reflected in the questions a thru to c below Required a. Calculate the breakeven point for a shawarma outlet in terms of both sales dollars number of shawarmas sold each month. (6 marks) b. The company is considering offering a promotional selling price of $5.00 per shawarma during the first month of operations. How many extra shawarmas will have to be sold by a shawarma outlet at the promotional price compared to the normal average selling price in order to earn operating income of $2,500 during the first month? (6 marks) c. As an incentive program for the outlet manager, Joe S. Shawarma is considering implementing an alternative compensation method. Instead of paying the manager a fixed salary of $2,000 per month, the company is considering an incentive plan of $1,000 per month plus 8% of monthly revenue using this alternative method and the normal average selling price per shawarma, calculate how many shawarmas will have to be sold to achieve an operating income of $2,000 per month. (8 marks)
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