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.

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A. To calculate the break-even point, we need to consider the total costs incurred in operating the business.

Total cost per cone = Cost of ice + Cost of cone holder + Cost of straw + Cost of flavoring

Total cost per cone = $0.25 + $0.05 + $0.03 + $0.10
Total cost per cone = $0.43

Total fixed costs = Rent + Advertising + Equipment + Franchise fee

Total fixed costs = $4000 + $1500 + $2500 + $500
Total fixed costs = $8500

Break-even point = Total fixed costs / (Selling price per cone - Total cost per cone)

Break-even point = $8500 / ($2.50 - $0.43)
Break-even point = $8500 / $2.07
Break-even point ≈ 4107 cones

Therefore, you would have to sell approximately 4107 snow cones over the summer to break even.

B. To calculate the number of snow cones needed to make a $10,000 profit, we need to consider the profit per cone.

Profit per cone = Selling price per cone - Total cost per cone - Commission - Royalty

Commission = 10% of Selling price per cone
Royalty = 10% of Selling price per cone

Profit per cone = $2.50 - $0.43 - (0.10 * $2.50) - (0.10 * $2.50)
Profit per cone = $2.50 - $0.43 - $0.25 - $0.25
Profit per cone = $1.57

Number of snow cones needed = (Profit target + Total fixed costs) / Profit per cone

Number of snow cones needed = ($10,000 + $8500) / $1.57
Number of snow cones needed ≈ 10860 cones

Therefore, you would have to sell approximately 10,860 snow cones over the summer to make a $10,000 profit.

C. To analyze the given options, we need to calculate the total profit for each scenario.

Option i. Spend an additional $2000 in rent for a better location to sell an additional 5,000 cones:

Additional revenue = Additional cones * Selling price per cone
Additional revenue = 5000 * $2.50
Additional revenue = $12,500

Additional cost = Additional rent
Additional cost = $2000

Total profit = (Additional revenue - Additional cost) + ($10,000 - Total fixed costs)

Option ii. Drop the price by 10% and sell an additional 2,500 cones:

Additional revenue = Additional cones * (Selling price per cone - 10%)
Additional revenue = 2500 * ($2.50 - 0.10 * $2.50)
Additional revenue = 2500 * $2.25
Additional revenue = $5625

Total profit = Additional revenue + ($10,000 - Total fixed costs)

Option iii. Raise the price by 50% and sell only 8000 units:

Additional revenue = Additional cones * (Selling price per cone + 50%)
Additional revenue = 8000 * ($2.50 + 0.50 * $2.50)
Additional revenue = 8000 * $3.75
Additional revenue = $30,000

Total profit = Additional revenue + ($10,000 - Total fixed costs)

Compare the total profits for each option and choose the one with the highest profit. Explain the reason for choosing the option based on the profit comparison.