Patricia Hawking is considering opening a small bagel shop inUniversity City. Her initial research has discovered thefollowing information. Fixed costs (mostly the costs ofthe facility and salaries), excluding advertising will cost $50,000per month, and provide her with a capacity to serve 60,000customer-visits per month. Due to the size of thefacility, increasing capacity beyond that will be extremelydifficult. Each customer-visit will generate averagerevenues of $4.50, and incur average direct material costs of$2.50.
1. Based on the above information, what is Hawkingâs breakevenpoint (in terms of customer-visits permonth)? __________ Is this feasible?___________
2. Based on the above information, what is the monthly profit ofHawkingâs Bagels in February assuming it serviced 20,000customer-visits?
3. Assuming that Hawkingâs cannot increase customer-visits inthe short-run, what increase in average customer revenue isnecessary in order to break-even?
4.Preliminary market research suggests that without anyadvertising, Hawkingâs mere presence should generate a customerbase of 20,000 visits per month. It also suggests thatHawkingâs can increase that customer base by running up to 60advertisements in the local papers each month. Assumethat each advertisement run during the month would increasecustomer demand for the month by 1% over the no-advertisingbase. For example, with 10 advertisements in the currentmonth, there would be a total of 22,000 customer visits thismonth. For simplicity, assume that the ads have NO valuebeyond the month in which they run and that each advertisementcosts $150. How many advertisements per month shouldHawkings run in order to break-even?
Patricia Hawking is considering opening a small bagel shop inUniversity City. Her initial research has discovered thefollowing information. Fixed costs (mostly the costs ofthe facility and salaries), excluding advertising will cost $50,000per month, and provide her with a capacity to serve 60,000customer-visits per month. Due to the size of thefacility, increasing capacity beyond that will be extremelydifficult. Each customer-visit will generate averagerevenues of $4.50, and incur average direct material costs of$2.50.
1. Based on the above information, what is Hawkingâs breakevenpoint (in terms of customer-visits permonth)? __________ Is this feasible?___________
2. Based on the above information, what is the monthly profit ofHawkingâs Bagels in February assuming it serviced 20,000customer-visits?
3. Assuming that Hawkingâs cannot increase customer-visits inthe short-run, what increase in average customer revenue isnecessary in order to break-even?
4.Preliminary market research suggests that without anyadvertising, Hawkingâs mere presence should generate a customerbase of 20,000 visits per month. It also suggests thatHawkingâs can increase that customer base by running up to 60advertisements in the local papers each month. Assumethat each advertisement run during the month would increasecustomer demand for the month by 1% over the no-advertisingbase. For example, with 10 advertisements in the currentmonth, there would be a total of 22,000 customer visits thismonth. For simplicity, assume that the ads have NO valuebeyond the month in which they run and that each advertisementcosts $150. How many advertisements per month shouldHawkings run in order to break-even?
