Reference no: EM131783087

Shawarma Inc., is a new company currently studying various alternatives in regard to opening Shawarma outlets. The only available data was formulated by a hired consultant who, unfortunately, died quite suddenly. A summary of the information that the consultant developed is as follows:

Average Selling Price per Shawarma $7.50

Normal Monthly Costs	Fixed	Variable
Cost of Shawarmas Sold	$0	$5,500
Manager's Salary	2,000	0
Wages	2,000	0
Rent	1,500	500
Utilities	500	200
Insurance and Commissions	1,000	0
Total Costs	$7,000	$6,200

*Note: Costs are based on budgeted sales of 2,000 shawarma's per month.

The above information represents estimates for the operations of a Shawarma outlet.  Joe's is interested in opening the outlets as soon as possible and has asked you to comment on the various   scenarios as reflected in the questions a thru to c below.

Required:

Calculate the breakeven point for a shawarma outlet in terms of both sales dollars and number of shawarmas sold each month.

The company is considering offering a promotional selling price of $5.00 per shawarma during the first month of operations. How many extra shawarmas will have to be sold by a shawarma outlet at the promotional price compared to the normal average selling price in order to earn operating income of $2,500 during the first month?

As an incentive program for the outlet manager, Joe S. Shawarma is considering implementing an alternative compensation method. Instead of paying the manager a fixed salary of $2,000 per month, the company is considering an incentive plan of $1,000 per month plus 8% of monthly revenue Using this alternative method and the normal average selling price per shawarma, calculate how many shawarmas will have to be sold to achieve an operating income of $2,000 per month.