posted by Donny on .
You are interested in opening a SNOW BIZ snow cone shack. The SNOW BIZ company who wants to franchise this business to you has provided the following general information:
Cost to make each snow cone:
$0.25 ice, $0.05 plastic cone holder, $0.03 plastic straw, $0.10 flavoring
Other costs to operate the business:
$4000 rent in for SNOW BIZ shack
$1500 advertising (10 ads at $ 75 each for Montgomery newspaper ad and $75 each for Opelika newspaper ad)
$2500 for equipment (ice makers, refrigerators, etc.)
$ 500 franchise fee
The suggested selling price is $2.50 per cone. You forecast demand to be 10,000 cones for the summer. You pay a 10% commission on each cone sold by your friends who will do all the selling. You pay another 10% royalty on selling price to the SNOW BIZ franchise organization.
A. How many snow cones would you have to sell over the summer to break-even (3 pts)?
B. If you wanted to make $10,000 profit for the summer, how many snow cones would you have to sell (3 pts)
C. If you had the following options, which would you choose and tell me why in writing (4 pts)?
i. You could spend an additional $2000 in rent for a better location to sell an additional 5,000 cones OR
ii. You could drop price by 10% and sell and additional 2,500 cones OR
iii. You could raise price by 50% and sell only 8000 units.