Question
Tom used to run his own business, a small caf in the East of Singapore. Last year, due to water damage from a flash flood,
Tom used to run his own business, a small caf in the East of Singapore. Last year, due to water damage from a flash flood, not only did he lose a substantial part of his inventory; but his caf alsosustained damages. In order to carry on his business, he sold the cafe to his friend, Bill, who invested money to replace/repair damaged shop fixtures and machines, and to purchase new inventory. The small caf offers coffee and tea, and light food snacks bought from outside suppliers. The snacks are heated up in the caf and served. There is only one other worker, a waiter. Tom is now the manager. Between the two of them, they make drinks, serve customers, and clean up. Tom is in charge of purchasing. When he was running his own business, Tom did not receive a salary. Now he is paid $2,500 per month. The waiter is paid $1,000 a month. They both work from 9 am to 8 pm, six days a week. Tom is in charge of purchasing for the caf. In the past he often bought more inventory in bulk to get a lower price. However, as the inventory is perishable, it often spoils and at the end of each quarter about 30% is thrown away. This spoilage cost has been factored into the cost of ingredients per set. The caf sells drink & snacks in a set. The average ingredient costs of each set is $2.20 and it is sold at $4 per set. Rent and utilities average $2,500 per month. The business uses the number of sets as an allocation base for its overhead costs.
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