| |
a) Viability of the proposal
| Profit calculation |
Sales |
€ 2.50 |
|
Variable cost |
€ 0.92 |
|
Contribution per unit |
€ 1.58 |
|
Total contribution |
€ 237,000 |
|
Fixed cost |
€ 180,000 |
|
Profit |
€ 57,000 |
| |
|
|
|
Break-even point
|
180,000 |
113,924 units |
€ 284,810 revenue |
|
1.58 |
|
|
| Margin of safety |
|
36,076 units |
€ 90,190 revenue |
The proposal is viable.
b) New proposal
| Volume (150,000x 115%) |
172,500 |
|
|
| Contribution |
€ 1.33 |
|
|
| New contribution |
€229,425 |
|
|
| Fixed cost |
€180,000 |
|
|
| Profit |
€ 49,425 |
(drop of €7,575 ) |
|
| Break-even point |
135,338 units |
(increase of 21,414 units) |
|
c) Recommendation
Yes, the fresh bread proposal should be adopted but not with the free cup of tea.
d) Other factors to consider:
- Would the image of the outlet be affected?
- Better service to existing customers or potential to attract new customers?
- Would sales of prebaked bread be affected by the fresh baked bread?
- Are the staff experience enough?
- Can staff cope with the additional work?
- Are there health and safety considerations?
- Are there legal concerns that need to be addressed?
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