Question

Concession Supply sells hotdogs, buns, and nacho ingredients to several major league ballparks across the country. Currently, Concession Supply has the following pricing information for one case of hotdogs sold at Wrigley Field: Total fixed costs = $1,200, Selling price = $16, and Variable costs = $6.
1. To break even, Concession Supply should sell how many cases of hot dogs per day at Wrigley Field?
2. What is the breakeven point in dollar sales volume?
3. If Concession Supply increased its price by 10 percent and experienced only a 2 percent decrease in the demand for hotdogs, what the demand would be?
4. If Concession Supply wanted to make a profit of $800 on each case, how many cases would it need to sell?

Answer 1

Answer:

1. 120 hot dogs per day

2. $1,920

3. Inelastic

4.200

Explanation:

1. Break even is a term given to a situation where there is no profit or loss made by an organization for product sales.

Formula is;

Fixed cost /contribution per unit, where contribution per unit is selling price - variable price.

Solution.

Since Total fixed cost =$1,200, Selling price=$16, Variable costs=$6

=Fixed costs/(Selling price - Variable costs).

= $1,200/($16 - $6)

=$1,200/$10

=120 hot dogs.

2. Break even point in dollar sales volume. This refers to the number of products that would be produced and sold to cover production cost.

Formular is ;

Fixed cost/contribution per unit× Sales price per unit.

Solution

=Fixed costs/(Selling price - Variable costs)× Selling price.

=$1,200/($16 - $6)×$16

=$1,200/$10×$16

=$1,200×$16/$10

=$19,200/$10

=$1,920

3. The demand would be inelastic. Inelastic demand is when the demand of buyers does not change as much as changes in price.

4. Achieve level of sales target. This is when management wanted to know the sales level at which targeted profit will be achieved.

Formula

Fixed costs + Target profit/Contribution per unit

Solution.

=Fixed costs + Target profit/(Selling Price - Variable costs)

= $1,200 + $800/($16-$6)

=$1,200 + $800/($10)

=$2,000×/$10

=$200

=200 cases would needed to sell