Peter Kankel, the CFO of On- the- Go convenience stores, had only a couple of hours to decide what he would recommend. Decisions to add products are often challenging. Kankel knows that modern convenience stores have to do more than just remain open late into the evening and offer a diverse product assortment; they have to change with the times or face extinction. Over the years, On- the- Go has stocked new products and services, such as gasoline, lottery tickets, and even Internet shopping and delivery services. A walk through any of its stores is likely to reveal in excess of 2,000 different products and services, often available 24 hours a day, seven days a week. There are close to 150,000 convenience stores scattered across the United States. The industry generated $ 350 billion in sales for 2011.
1. (a) Calculate the contribution margin per unit for money orders.
(b) Calculate how many money orders each On- the- Go location would need to sell each month to break even on the service.
(c) Calculate how many money orders each On- the- Go location would need to sell each month to earn an operating income of $ 140 per month.
2. On the basis of financial considerations alone, should On-the- Go sell deli sandwiches? If so, should the store purchase prepackaged sandwiches or make them in the store? What other factors, if any, regarding the sandwiches should Peter Kankel consider?
3. Suppose On- the- Go can sell 300 money orders each month and 24 deli sandwiches during lunchtime each day. What should Peter Kankel recommend to Patrick Newhouse about selling money orders and deli sandwiches? How should Kankel consider the issues that Lefarge and Polk raised in reaching his recommendation?