Additional Recommended Question: Uncertainty
Voltaire, a renowned pastry chef employed at a four-star hotel, has decided to open his own
exclusive pastry shop. He has $100,000 to invest and the information he has obtained is as
There is a 55% probability the market size in the area will be 600,000 pastries per year
and a 45% chance it will be 450,000 pastries per year.
Price per pastry is assumed to be $4.00 and this is the basis for predicting Voltaire’s
Variable costs are $2.60 per pastry.
The market share Voltaire will capture depends on where he locates. There are two possibilities:
Location A costs $38,000 annual rent where Voltaire will capture 30% of the pastry
market (his market share). Fixed costs excluding rent are estimated at $90,000 per year.
Location B costs $12,000 annual rent where Voltaire will capture 22% of the pastry
market (his market share). Fixed costs excluding rent are estimated at $54,000 per year.
Selling price per unit $120 $200
Direct materials $30 $40