# Question

The owner/manager of a beverage and food retail outlet intends to invest $400,000 in another retail store. He wants to make at least $75,000 in profit before taxes, or 18.75% return on his investment. Based on his market study, he estimates selling 200,000 coffees, 100,000 donuts, 75,000 sandwiches, and 75,000 soups. The unit selling prices for these products are $1.75 for coffee, $1.00 for donuts, $2.25 for sandwiches, and $1.75 for soups. Based on current purchasing costs from existing suppliers, his cost of sales are estimated at 15%, 20%, 40%, and 25% of revenue for coffee, donuts, sandwiches, and soups, respectively. His other annual costs include rent ($100,000), salaries ($235,000), heating and hydro ($45,000), municipal taxes ($35,000), and a variety of other costs ($40,000).

1. With the above information,

(a) Construct the statement of income

(b) Calculate the owner/manager’s break-even point in dollars.

2. If his cost of sales was reduced by 10%, how would that affect his break-even point?

3. If his rent and salaries increase by $25,000 and $50,000, respectively, how would these changes affect his break-even point (assume that the variable costs remain at the original estimate)?

4. If the changes in both 3 and 4 above take place simultaneously, how would these changes affect his break-even point?

5. If the owner/manager wants to make a $150,000 profit before taxes based on his original cost estimates, how much revenue must his retail outlet generate?

1. With the above information,

(a) Construct the statement of income

(b) Calculate the owner/manager’s break-even point in dollars.

2. If his cost of sales was reduced by 10%, how would that affect his break-even point?

3. If his rent and salaries increase by $25,000 and $50,000, respectively, how would these changes affect his break-even point (assume that the variable costs remain at the original estimate)?

4. If the changes in both 3 and 4 above take place simultaneously, how would these changes affect his break-even point?

5. If the owner/manager wants to make a $150,000 profit before taxes based on his original cost estimates, how much revenue must his retail outlet generate?

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