A nearby community has the demographic makeup described above. A psychographic study shows that the community spends the majority of their disposable income on recreational activities for their children (sports, dance, music, movies, travel, etc.) not on food. What kind of foodservice business might you set up in this community to appeal to the local market? Describe the business’s brand.

regular sales price $270, total sales per month = 10 units

basic manufacturing costs:

variable cost per unit $120

fixed costs $3,000

if further processed, sales price $300

if further processed:

additional variable cost $20 per unit

additional fixed costs $400

At what sales price level would the new, improved radio begin to improve operating earnings?

                                    sales price $270                  

revenue                            $2,700

variable costs                  -$1,200

fixed costs                       -$3,000

operating income           -$1,500

                                    sales price $300                  

revenue                            $3,000

variable costs                  -$1,400

fixed costs                       -$3,400

operating income            -$1,800

Since relevant costs increase by $60 per unit (= $20 variable costs and $400/10 in fixed costs), then the sales price should increase more than $60 in order to lower the company's losses.

If the company wants to make a profit, then it should increase its sales price by more than $180 per unit. If the radio is processed further, in order to break even its sales price should be $480 per unit.

                                    sales price $480                  

revenue                            $4,800

variable costs                  -$1,400

fixed costs                       -$3,400

operating income                 $0

Any sales price above $480 will result in an operating profit.