Problem:
Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports an operating income of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per hot dog. (The selling price per hot dog should be calculated given the information.)
Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8,808. Initial sales of nachos are expected to total 5,000 units. Most of the nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly contribution margin of hot dogs is expected to decline to $20,000.
After the first year of nacho sales, the company president believes that hot dog sales will increase to $33,759 a month and nacho sales will increase to 7,500 units per month.
Required:
Q1. Determine the monthly breakeven sales in dollars before adding nachos
Q2. Determine the monthly breakeven sales during the first year of nacho sales.
Q3. Determine the monthly net income, after the first year of nacho sales. Assume a tax rate of 40 percent.