Arnold’s Brew Pub, located near Southwestern State University, serves as a gathering place for the university’s more social scholars. Arnold sells draft beer and all brands of bottled beer at a contribution margin of $.72 a beer.

Arnold is considering also selling hamburgers during selected hours. His reasons are twofold. First, sandwiches would attract daytime customers. A hamburger and a beer are a quick lunch. Second, he has to meet competition from other local bars, some of which provide more extensive menus.

Arnold analyzed the costs of adding hamburgers as follows:

Arnold planned a selling price of $1.25 per hamburger to lure many customers. For all questions, assume a 30-day month.

1. What are the monthly and daily break-even points, in number of hamburgers?

2. What are the monthly and daily break-even points, in dollar sales?

3. At the end of 2 months, Arnold finds he has sold 3,800 hamburgers. What is the operating profit per month on hamburgers?

4. Arnold thinks that at least 75 extra beers are sold per day because he has these hamburgers available. This means that 75 extra people come to the bar or that 75 buy an extra beer because they are attracted by the hamburgers. How does the sale of hamburgers combined with the accompanying effect on beer sales affect Arnold’s monthly operating income?

5. Refer to requirement 3. How many extra beers would have to be sold per day so that the overall effect of the hamburger sales on monthly operating income would be zero?

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Per Month Per Hamburger Monthly Fixed Expenses Variable Expenses Wages of part-time cook $1,452 Rolls $.11 Meat @ $2.66 per pound (seven hamburgers per pound) Other 330 .38 Total $1,782 Other .22 Total $.71